SAN DIEGO - Federal Reserve Board Chairman Alan Greenspan, expressing concern about increased use of derivatives, told bankers here that the central bank might step up the use of specialized teams of examiners to monitor the instruments.
In a speech to the American Bankers Association, the Fed chairman also urged bankers to periodically reassess the mathematical models they use to control their derivative portfolios.
"It is especially important that senior managers of the system continuously acquaint themselves with the intracacies of the underlying assumptions that these models require in order to make certain that the decisions, where crucial, are not implicitly being made by skillful, but market inexperienced. mathematicians," he said.
The central bank chief said that he expected regulators to develop new examination techniques, focusing increasingly on the management of risk in banks. One likely approach, he said, would be to require banks to make greater use of simulations.
Mr. Greenspan added that one important task for regulators would be to develop global standards "so that institutions have a level playing field."
