Change of Banking Crisis Near Zero, Fed Official Says

Federal Reserve Board Governor Susan M. Phillips said Friday that the chance of another banking crisis is "virtually zero."

"Despite the increased complexity of bank risk-taking activities, the chances of a repeat of the banking crisis of the late 1980s have been reduced," Ms. Phillips told the Atlanta Society of Financial Analysts. "The banks' higher capital levels and the improvements in their risk measurement and management processes contribute to the safety and soundness of the system."

Banks are beginning to allocate capital to cover interest rate and market risk, she said. They also are using risk-based pricing, forcing corporate customers with less than stellar credit histories to pay higher rates. Large trading banks have even developed models that compute an institution's exposure to swings in securities prices, she said.

Ms. Phillips also called on banks to disclose publicly more information about the riskiness of their portfolios.

"We applaud recent efforts on the part of some managements to increase voluntary risk disclosures in footnotes to their financial statements," she said. "But still more can and should be done."

Ms. Phillips noted that the industry wants new powers and fewer regulatory burdens for banks with "good management" and "adequate capital."

"As a bank supervisor, I would not want to rely even partially on the market's assessment of the capital adequacy of a bank-unless I were assured that market analysts had the data necessary to reach informed judgments," she said.