Wednesday March 8 11:29 AM ET

Greenspan to Banks: Don't Let Down Guard

SAN ANTONIO, Texas (Reuters) - Federal Reserve Chairman Alan Greenspan said on Wednesday banks should not be lulled into complacency by the current paucity of y2k glitches, warning that could lead to overly lax oversight.

The powerful U.S. central bank chief reminded commercial bankers that ``most bad loans are made based on bad data'' and cautioned that lenders who ignored that vulnerability were unlikely to survive.

``A broader and more troubling risk is that many banking institutions view current strong economic conditions as no longer extraordinary and exceptional but rather as ordinary and expected,'' he told the Independent Community Bankers of America.

Greenspan said the Fed had seen ``growing evidence'' of banks granting credit solely on the expectation that America's economic boom -- the nation's economy is now in its longest ever expansion -- will continue indefinitely.

``Lending granted on that basis could have grave consequences for the industry's ability to weather weaker economic conditions,'' he said.

His remarks contained no reference to the outlook for U.S. interest rates or monetary policy more generally.

Greenspan also said bankers should not let their guard down against fraud and other, more mundane, dangers in the world of finance.

``In particular, banks and supervisors need to be continuously vigilant about traditional causes of bank failure such as fraud, credit concentrations, and rapid entry into new and unfamiliar activities,'' he said.

Greenspan voiced concern that intensified competition meant some banks were ``moving lower on the credit quality spectrum''.

Both the rise in stock prices and rising interest rates were exerting pressures on banks as well, the Fed chief said.

``The marked rise in equity values and mutual funds has put competitive pressure on your core deposit base. As these lower-cost funds have been replaced with funding from the Federal Home Loan Banks and capital markets, pressures on interest margins and liquidity have intensified,'' he said.

``Such funding shifts raise the important risk-management questions of how well the institution will function under stressful conditions and whether enough has been done to maintain adequate liquidity.''

Greenspan added that he detected a growing exposure to rising interest rates because average bank asset maturities were on the rise.

-- Arual (LogicLady64@loa.moc), March 08, 2000

Answers

LogicLady,

Cool name...in a twisted sort of way.

~*~

-- laura (Ladylogic@......), March 08, 2000.

Arual -

Having listened to some of that Greenspan speech, I was surprised by some of the Y2K-related text in the Reuters article. Checked Reuters and found that you did a rather nifty editing job on it. The o riginal Reuters article did not reference Y2K in the headline, and ya kinda tweaked some of the text a bit:

WIRE:03/08/2000 11:29:00 ET

Greenspan to Banks: Don't Let Down Guard SAN ANTONIO, Texas (Reuters) - Federal Reserve Chairman Alan Greenspan said on Wednesday banks should not be lulled into complacency by the current good economy, warning that could lead to overly lax lending.

The powerful U.S. central bank chief reminded commercial bankers that "most bad loans are made in good times" and cautioned that lenders who ignored that vulnerability were unlikely to survive...

Just a minor tweak, of course.

-- DeeEmBee (macbeth1@pacbell.net), March 09, 2000.

Very disturbing what has been done to the text of this article. It leads to the question: How many other articles were "tweaked" in this way in order to perpetuate FUD? Why would somebody do this?

Good catch, DeeEmBee.

-- Buddy (buddydc@go.com), March 09, 2000.

Buddy -

That's why one should be suspicious of news items posted without links, especially those which are purported to come from major sources such as Reuters. Unless we're able to examine the source document, it's far too easy to be mislead by "tweaked" text.

I have to think the folks at Reuters take a pretty dim view of folks altering their articles, but that's one for lawyers and such...

-- DeeEmBee (macbeth1@pacbell.net), March 09, 2000.