Another Big Failure in New England Unlikely, Says Boston Fed Economist

WASHINGTON -- The fragility of the New England banking system continues to be a drag on the region's economy, but another major bank failure there is not expected, said Yolanda Henderson, a Federal Reserve Bank of Boston economist.

While acknowledging that some banks lack adequate capital, she said a failure on the scale of Bank of New England is unlikely to be repeated.

Ms. Henderson spoke in an interview after a Capitol Hill briefing on regional economies. Banks' capital shortage has created a credit crunch that many analysts say is exacerbating the recession.

Official Predicts Failures

Another Boston Fed official, senior vice president Thomas Cimeno, told a meeting of economists in the Boston area last week that there will be bank failures, and they will involve significant assets in total.

He pointed out that 36 New England banks with $29 billion in aggregate assets have failed so far this year, with Bank of New England Corp.'s three subsidiaries accounting for two-thirds of those assets.

The Wall Street Journal reported Friday that Mr. Cimeno said banks with an equivalent amount of assets could fail in the region over the next 12 months.

While he foresees no failure in Bank of New England's size range, the failure of "20 mid-sized institutions isn't out of the question by any means."

Welcoming Fleet/Norstar

Ms. Henderson said Fleet/Norstar Financial Group's buyout of Bank of New England has alleviated some of the regional credit crunch by bringing in badly needed capital.

"We are very enthusiastic about the influx of capital from Fleet," she said.

In addition, she said, the Fed is encouraging banks to lend and "take an active part in the recovery."

But echoing recent views of Richard Syron, the Boston Fed's president, Ms. Henderson said New England's rebound probably will lag behind the national recovery, forecast for this summer. No regional upturn is expected before yearend or early 1992, she said.

Hurdles to Region's Recovery

Hampering New England's recovery will be the upheaval in the computer industry, the decline in defense contracting, uncertainty over the future direction of high technology, and the high cost of doing business in the region, Ms. Henderson said.

"We do not see enough to make us really hopeful" about the future of manufacturing, she added.

Home sales, up slightly because of lower interest rates and prices, provide tentative evidence of the beginning of a gradual recovery. "More and more people are looking and more people are signing contracts," Ms. Henderson said.

Industries selling goods outside the region also report a turnaround in orders, she said. And consumer and business confidence improved with the sale of Bank of New England and improvements in cutting the Massachusetts deficit, Ms. Henderson said.

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