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To: goldsnow who wrote (34848)	6/4/1999 5:39:00 AM
From: Alex	Respond to of 116764

Federal Reserve Puts Big Banks Under Watchful Eye A little too much risk, maybe? The Federal Reserve is intensifying its supervision of the largest US and international banks in an attempt to meet rising concerns about the risks they could pose to the banking system. Laurence Meyer, a member of the Fed's board of governors, yesterday said the Fed began "sharpening its supervisory focus" on 20 US banks and 10 international banks last year in response to their increasing size and complexity. Laurence Meyer, a member of the Fed's board of governors, yesterday said the Fed began "sharpening its supervisory focus" on 20 US banks and 10 international banks last year in response to their increasing size and complexity. In a speech to state bank supervisors, Mr Meyer also warned there were signs of "slippage" in bank lending standards. The volume of non-performing assets increased last year for the first time since 1991, particularly in commercial and industrial loans. Meanwhile, community banks are facing increasing threats from the rising number of bad agricultural loans. Mr Meyer suggested that the Fed's concerns about "systemic risk" were heightened by the growing power of the top 20 US banks, which control 82 per cent of the assets of the largest 50 banks. A decade ago the top 20 institutions controlled 68 per cent of those assets. The Fed is also concerned about the concentration of derivatives and securitisations - including consumer loans and commercial credits - among the largest banks, which the Fed now calls large complex banking organisations (LCBOs). Mr Meyer said the Fed increasingly favoured continuous monitoring of the largest banks, including online access to management information. Two of the largest banks already allow the Fed direct access to data on their internal audit processes. The Fed has faced strong criticism in Congress for its role in co-ordinating the private bail-out last year of the hedge fund Long-Term Capital Management. Members of Congress have attacked the Fed for appearing to back a "too big to fail" doctrine which would ensure the survival of any of the largest institutions. Mr Meyer also urged banks to improve their credit risk management, citing a "disappointing" recent visit by Fed officials to inspect the risk models used by a large number of banks. "Much more progress is necessary before most large banks, themselves, can gain a solid grasp on their risk exposures for risk management purposes," he said. A move to tighter regulation of the biggest banks had been predicted by Wall Street observers. Henry Kaufman, one of the most respected US economists, said this would happen last year, after the announcement of the merger of Citicorp with Travelers Group, the largest financial services merger to date. He said huge banks would need to be "treated more and more like public utilities" rather than entrepreneurially run private enterprises. He said that Citigroup, the company which resulted from the Citicorp-Travelers merger, would be "too big to fail" and would therefore need heavy and intrusive regulation to ensure that they were "too good to fail". Last year's hedge fund and proprietary trading crises mostly affected banks with large retail businesses in the US, increasing the systemic risks. Several of the largest banks, such as Chase Manhattan, reinforced their risk management processes in the wake of the 1997 Asian financial crisis. The Financial Times, June 4, 1999