Stability of Banking Industry Is Threatened, Warns Volcker: Proposes a Broad Array of Initiatives to Strengthen System
Trigaux, Robert, American Banker
NEW ORLEANS -- "Stability once taken for granted" in the banking industry "has been threatened," Federal Reserve Chairman Paul A. Volcker told the American Bankers Association's convention here Monday. He suggested an arrary of initiative to help keep the system safe and sound.
"There are, in fact, real problems that demand a constructive, industry-wide response," Mr. Volcker said. Problems and excesses of a few banks and a large number of thirfts have raised "questions about the direction the industry is taking."
In his prepared remarks, Mr. Volcker posed to his banking audience whether a generation and more of stable banking growth "did not, in fact, dull our sensitivities to some of the eternal verities of banking," such as public trust and sound credit judgment.
Mr. Volcker joined bankers here in both public and private meetings on Monday. After his morning address, he was scheduled to meet privately with about 150 international bankers to encourage commercial bank participation in a plan offered by Treasury Secretary James Baker to increase bank lending to less developed countries by 20 billion over the next three years.
Briefly, the Treasury plan would combine more active lending by the World Bank and other government institutions with net new financing by international banks.
"Participation in such a program is, in the end, up to the decision of individual institutions," Mr. Volcker said. "I can only be encouraged by the initial responses to Secretary Baker's initiative, by government and by banks alike."
Meanwhile, in Washington, Treasury Secretary Baker is scheduled to testify today before the House Banking Committee to provide further details of his international debt plan.
Before a large audience here, Mr. Volcker voiced the following concerns about the banking industry:
* Simple capital/asset ratios may be driving banking risks off balance sheets. "Is off-balance-sheet' also 'out of mind?'" Mr. Volcker asked.
* Current capital and liquidity supervision should be supplemented with a risk-based measure of provide a "second opinion" on capital adequacy. …