Comptroller of the Currency Eugene A. Ludwig used his swan song Wednesday to repeat his oft-stated concern that banks are making bad loans.
"Long before the current Asian problems appeared on our screens, we were seeing too much money in the banking system chasing too few good deals," Mr. Ludwig said in a speech to the Exchequer Club. "The problems in East Asia add weight to our concerns about liquidity and underwriting standards."
Before his five-year term expires April 4, Mr. Ludwig has vowed, he will issue comprehensive guidelines designed to improve loan portfolio management at national banks.
"Certainly the institutions with the largest, most complex loan portfolios need to improve their risk management techniques," the comptroller said. "And virtually all banks would benefit by adopting more proactive risk management and measurement practices."
For three years Mr. Ludwig and other federal regulators have claimed bankers are taking too much credit risk. Mr. Ludwig has chastized the industry for weak underwriting standards, razor-thin margins, and generous repayment schedules.
The agency's portfolio management guidelines will help a bank grasp the complete picture of its credit risk and provide tools to analyze and control it, he told the group of financial services lawyers, consultants, and trade group officials.
Though planning to issue his advice in the form of guidelines rather than mandatory rules, Mr. Ludwig made clear that bankers will be expected to improve portfolio oversight. "We will make certain that our admonitions are followed," he said.
Citing a Robert Morris & Associates survey, Mr. Ludwig said only four of the 64 largest North American banks practice "advanced techniques of portfolio management."
In an interview, Emory Wayne Rushton, senior deputy comptroller for bank supervision policy, said the agency is pulling together many of the specific warnings it has sounded recently such as the call last August for stronger loan-loss reserves.
"It's kind of a holistic approach to lending," Mr. Rushton said. "Here we're just trying to roll up every related guidance into one product."
David D. Gibbons, de-puty comptroller for credit risk, explained that the agency will break down the lending process into 20-plus components. "We've really never described the entire lending process," he said. "There are a number of component parts, and everybody needs to understand how those parts fit together."
Though credit standards continue to slip, Mr. Ludwig said, one-on-one talks between examiners and national bank chief executives have yielded progress. For example, banks are upgrading information systems to identify problem loans and beefing up workout units to collect them, he said.
"Unfortunately, not all banks are taking such prudent, pro-active measures," he said. For example, banks are entering new businesses such as subprime lending without the expertise needed to handle the added risk.
