Magazine article American Banker

Volcker Urges Thrifts to Stick to Housing

Magazine article American Banker

Volcker Urges Thrifts to Stick to Housing

Article excerpt

WASHINGTON -- Federal Reserve Chairman Paul A. Volcker said federal regulators will help thrifts that have gotten into trouble while engaged in traditional housing-related lending.

But he warned that the new powers being awarded by states threaten the soundness of lenders. He left the implication, though he didn't say so, that federal aid might not be readily available for institutions that get into trouble by making nontraditional loans.

Mr. Volcker, speaking Wednesday at the Federal Home Loan Bank System's annual outlook conference, said regulators will try to help thrifts that, "from their own portfolios, [show] they support housing credit."

The thrift industry "can return to health while maintaining a traditional orientation toward housing finance," he said.

The regulators are concerned about the safety and soundness of institutions that expand their activities, he said. "There is a strong movement among states to authorize banks or thrifts or both for more powers -- powers far beyond those at the federal level."

"A number of areas of liberalization of powers seem to pose no problem," he added. But "wide open" powers in real estate activity are one area of concern, he said.

"We wonder how prudently those funds are being employed," he said of funds being used by thrifts for expanded activities. "We've taken steps to deal with excesses" in order to "protect the stability of the financial system as a whole."

It may be necessary "in time to take further steps to cut risk and rebuild net worth on a continuing basis," he said. "We must as administrators of the federal safety net assert an interest in what state-chartered institutions can do."

On another matter, Mr. Volcker said the federal deposit insurance funds "are going to have to be defended in the last analysis. …

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