Comptroller Warns on US Securities Dealers
Zigas, David, American Banker
WASHINGTON -- More failures by "small, thinly capitalized" government securities dealers may occur as such firms scramble to stay in the market, the acting U.S. comptroller of the currency told the Securities and Exchange Commission.
In a letter to the SEC, acting Comptroller H. Joe Selby said recent problems in the government securities market "may have increased the pressures on government securities dealers [that] may be misappropriating securities or funds left in their possession."
Mr. Selby said his agency is unable to identify how many dealers are in this position, but he said their activities "pose the risk of future failures" by the smaller firms. He added that many government dealers apparently still do not normally deliver securities under repurchase agreements, or repos.
Repos are contracts to sell securities, usually Treasury instruments or securities of a government agency, with a simultaneous agreement to repurchase them at a later date and price. The buyer is effectively lending the seller money, with the securities as collateral.
One of the reforms most widely discussed in the wake of the collapses of E.S.M. Government Securities Inc. and Bevill, Bresler & Schulman Inc. has been a requirement that the repo lender take delivery -- either directly or through a third-party custodian -- of the collateral.
Mr. Selby said his agency may impose lending limits on banks that do not secure collateral when lending through repos, even though he believes only a few national banks have failed to take adequate measure to protect themselves in these transactions. …