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To: IngotWeTrust who wrote (29095)	2/26/1999 5:18:00 PM
From: Alex	Respond to of 116906

Minn. Fed Stern warns of "moral hazard" in banking NEW YORK, Feb 26 (Reuters) - Federal Reserve Bank of Minneapolis President Gary Stern warned on Friday against the ''moral hazard'' that may prompt banks to undertake too much risk amid excessive confidence of government safety nets. ''The rapid evolution of the banking industry should concern policymakers and regulators,'' Stern told the Winter Institute in St. Cloud, Minn., in a speech also available in New York. ''The source of the concern is not the evolution itself... The trouble arises from the interaction of these developments with our policies to safeguard the banking system and bank depositors,'' Stern added. The Minneapolis Fed president did not directly refer to the U.S. capital market turmoil that prompted three interest rate cuts last fall but noted ''fundamental changes taking place in the banking industry (that) exacerbate the tendency of government safeguards to encourage banks to take on too much risk -- the so-called moral hazard problem.'' Stern said many analysts argued ''this distortion to the risk-reward trade-off was an important factor behind the savings and loan and banking crises of the 1980s and perhaps the recent financial turmoil in Asia as well.'' Stern said the recent wave of bank mergers ''has almost certainly led to more Too-Big-To-Fail institutions. This matters, because policymakers and regulators have long made clear that they will rescue the liability holders of the largest banks because of their fear of contagion and systemic instability.'' The Minneapolis Fed president also noted that large banks have gone into sophisticated arbitrage trades that inflates the amount of their capital at risk. ''As a result, the banks are in full compliance with regulatory capital standards even though the expected losses of their portfolio exceed the capital that regulations require they hold,'' Stern cautioned. He warned that ''conventional reforms fall short of the mark,'' and noted the importance of taking market signals into account. Stern suggested ''modest'' reforms to limit risks tied to changes in the banking industry, otherwise ''the justification for regulation and the safety net declines, and could eventually disappear, if banks continue to become more like other financial services firms.'' biz.yahoo.com

To: IngotWeTrust who wrote (29095)	2/26/1999 6:49:00 PM
From: Timothy Liu	Read Replies (1) \| Respond to of 116906

You are entitled to your opinion too. FUD is the same as exuberance that can be used to ones advantage. I do hold some silver and platinum position from a month ago but you can be sure that I will find someone to unload to long before the century bell struck. :) Tim