Greenspan to Congress: Rethink Banking Rules

By Klinkerman, Steve | American Banker, May 7, 1993 | Go to article overview

Greenspan to Congress: Rethink Banking Rules


Klinkerman, Steve, American Banker


CHICAGO - Federal Reserve Board Chairman Alan Greenspan on Thursday called on Congress and regulators to change their perceptions about the risk profiles of the nation's banks and to loosen restrictive laws.

Banks and the nation's economy will be hurt by a continuing emphasis on risk avoidance, he said, adding that Congress should stop "micromanagement" of banks and expand their powers.

Speaking at a conference sponsored by the Federal Reserve Bank of Chicago, the nation's senior banking regulator said Congress overreacted when it passed the Federal Deposit Insurance Corporation Improvement Act of 1991.

He cited section 132 of the law as "the most inconsistent with appropriate bank regulation."

The section directs federal bank agencies to set standards "regarding operations, management, asset quality, earnings, stock values ... and employee compensation.," Mr. Greenspan said.

|Risk Taking Is Essential'

"There is danger," he added, in moving too aggressively to protect taxpayers from the cost of bank failure, since risk taking is essential to the creation of wealth.

"If minimizing risks to taxpayers is interpreted as minimizing bank failure, then we are very likely to deter banks to an excessive degree from accepting the kinds of risk that create the value of their franchises," he said.

Mr. Greenspan also urged lawmakers to carefully consider proposals now being prepared by the Federal Financial Institutions Examination Council to modify certain sections of the law.

Recent Regs Defended

At a separate session of the conference, Harrison Young, director of resolutions at the FDIC, defended many of the recent laws and regulations. …

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