Magazine article American Banker

Ludwig Reiterates Plan for Broad Guidelines on Managing Portfolio Risk

Magazine article American Banker

Ludwig Reiterates Plan for Broad Guidelines on Managing Portfolio Risk

Article excerpt

Comptroller of the Currency Eugene A. Ludwig used his swan song Wednesday to repeat his oft-stated concern that banks are making bad loans.

"Long before the current Asian problems appeared on our screens, we were seeing too much money in the banking system chasing too few good deals," Mr. Ludwig said in a speech to the Exchequer Club. "The problems in East Asia add weight to our concerns about liquidity and underwriting standards."

Before his five-year term expires April 4, Mr. Ludwig has vowed, he will issue comprehensive guidelines designed to improve loan portfolio management at national banks.

"Certainly the institutions with the largest, most complex loan portfolios need to improve their risk management techniques," the comptroller said. "And virtually all banks would benefit by adopting more proactive risk management and measurement practices."

For three years Mr. Ludwig and other federal regulators have claimed bankers are taking too much credit risk. Mr. Ludwig has chastized the industry for weak underwriting standards, razor-thin margins, and generous repayment schedules.

The agency's portfolio management guidelines will help a bank grasp the complete picture of its credit risk and provide tools to analyze and control it, he told the group of financial services lawyers, consultants, and trade group officials.

Though planning to issue his advice in the form of guidelines rather than mandatory rules, Mr. Ludwig made clear that bankers will be expected to improve portfolio oversight. "We will make certain that our admonitions are followed," he said. …

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