WASHINGTON - Presiding over his first hearing as chairman of the Senate Banking Committee Thursday, Sen. Alfonse D'Amato expressed concern about bank derivatives activities but reaffirmed his view that legislation is not needed.
Most lawmakers on the panel echoed the New York Republican's views, and sided with regulators and administration officials who also argued against new laws at the hearing.
"We cannot by legislation stop dumb stewardship," said Sen. Christopher S. Bond, R-Mo., alluding to Orange County Treasurer Robert Citron, whose investment strategies, involving derivatives, ultimately lost $2 billion of the county's $7.8 billion portfolio.
"We don't need more regulation, we need less," Sen. Bond added.
Nevertheless, Sen. D'Amato expressed concerns about derivatives transactions in federally insured banks.
"I don't want to have a situation where we have a debacle where we wind up one morning reading that we've got a $2 billion or $3 billion dollar loss in some institution as a result of highly leveraged transactions within the banks," he said.
Federal banking and market regulators testifying at the hearing reiterated that they have all the power they need to supervise the use of derivatives adequately.
"It would be a serious mistake to respond to these developments by singling out derivative instruments for special regulatory treatment," said Federal Reserve Board Chairman Alan Greenspan. "Such a response would create artificial incentives to structure transactions on the basis of regulatory rules rather than of the economic characteristics of the transactions themselves."
Sen. D'Amato also stressed that he felt derivatives are an important and healthy part of the financial markets.
"It's a good tool; it can be useful in avoiding losses, in terms of hedging, et cetera," Sen. D'Amato said.
One banking industry source said he felt the Senate panel's stance against derivatives legislation provided a sharp contrast with the approach that will be taken by the House Banking Committee.
"There's a strong sentiment of not doing anything at all" about derivatives legislation, said Bert Ely, a financial institutions consultant based in Alexandria, Va. "It seems to be very much in conflict with what Leach is doing."
House Banking Committee Chairman Jim Leach, R-Iowa, on Wednesday introduced a bill that requiring expanded controls for derivatives in banks and allowing the Fed to establish a self-regulatory organization to police derivatives activities within banks.
Mr. Ely added that although Sen. D'Amato had expressed concern about the use of derivatives by federally insured banks, "You can't really read legislation into that."
Sen. Paul Sarbanes of Maryland, the Senate Banking Committee's senior Democrat, pressed the witnesses about the contrast between their views and recent press accounts that he said warned of risks involved in derivatives.