WASHINGTON - Comptroller Eugene A. Ludwig grabbed the headlines last month when he announced the creation of a special committee to look at loan quality.
Speaking at a Bankers Roundtable conference in Florida, Mr. Ludwig said he wants to avoid a repeat of the 1980s, when banks loosened their underwriting standards so much that they caused a major banking crisis during the ensuing several years.
The announcement drew substantial attention, garnering coverage in most newspapers and even snaring a spot on the front page of The New York Times.
Officials at the Federal Reserve Board applauded Mr. Ludwig's interest in credit quality. But they said the comptroller doesn't deserve all the praise - the central bank has had a program in place for several years to monitor credit terms closely.
"It is important to be sensitive to changing credit conditions," said one Fed official. "We are endeavoring to keep a steady hand on it all the time."
The Fed monitoring system relies heavily on examiners and reserve bank officials, who are supposed to be constantly monitoring the credit terms at institutions within their districts.
"We are making efforts to keep track of what is going on," the official said.
The district officials then report to Washington, which compiles all the reports and coordinates dissemination of the information back to the reserve banks. Often, officials in Washington will travel to the reserve banks to brief staffers in each district on national and regional credit quality trends, the Fed official said.
"So, if something disturbing is happening in one district, they'll know about it," the official said.
While the monitoring system may sound simple, it actually requires constant vigilance and duplication to ensure accurate data is making it to the board.
A Fed official said reserve bank personnel are in daily contact with bankers. These examiners funnel credit quality information back to the reserve bank officials, who conduct conference calls with Washington-based personnel.
The central bank also conducts a direct survey of its examiners every quarter, part of which focuses on individual perceptions of credit quality, the Fed official said.
The Fed doesn't limit itself to tapping its own people for information. It conducts a periodic survey of senior loan officers, and publishes it several times a year.
Also, the Fed governors and senior staffers question bankers who come to Washington about their perception of credit quality, the official said.
Finally, the Fed reviews bank advertising, checking to see if banks are lowering their standards to lure borrowers.
These mechanisms serve as an early detection system for potential problems, the Fed official said.
Much of the Fed program has been up and running for several years, although the examiner surveys started only within the past six months.
But while regulators are looking for credit problems, economists are not convinced they'll find anything. "To the extent this is happening, it is more likely a spotty problem than across the board," said Bert Ely, president of industry consulting firm Ely & Co.
Still, regulators don't appear ready to lower their guard. In fact, it appears the banking agencies plan to keep credit quality a front-burner issue.
