Sen. Alfonse M. D'Amato, R-N.Y., heaped praise on the banking industry and its regulators Wednesday for reacting quickly to a decline in consumer credit quality.

The Senate Banking Committee chairman called bankers "vigilant" and commended regulators for being "tuned in to this situation."

Regulators and industry analysts told the panel's subcommittee on financial institutions that, despite rising concerns about delinquency rates and personal bankruptcies, banks are well-prepared.

Tougher underwriting standards, high profit margins, large capital reserves, and increased supervision will prevent or offset losses from bad loans, the regulators testified. The officials focused their testimony on the rise in credit card delinquencies.

"Unless future conditions deteriorate dramatically, we believe that the industry is well-positioned to absorb any problems resulting from the competitive consumer underwriting practices of the recent past," said Federal Reserve Board Governor Janet L. Yellen.

Comptroller of the Currency Eugene A. Ludwig highlighted the results of a survey that found 43% of the 29 largest national banks had tightened credit card lending standards in response to rising delinquency rates and bankruptcies.

Also, healthy earnings allow banks to offset the relatively high loan- loss rate for credit card loans, said Federal Deposit Insurance Corp. Chairman Ricki Helfer.

In the first quarter, Ms. Helfer said banks specializing in credit card lending charged off 3.9% of their total loans, compared to a net charge-off rate of .5% for all insured institutions. During that same period, however, credit card banks had more than twice the average return on assets of all insured institutions.

"Because of the profitability of the business, credit card lending is not now a problem," Ms. Helfer said.

In addition, current levels of reserves are more than adequate to provide a cushion should consumer loan quality deteriorate further, the regulators said.

At the end of the first quarter, the banking industry held $1.71 for every dollar of nonperforming loans, according to James Chessen, chief economist for the American Bankers Association.

"This means that the banking industry could write off every dollar of every nonperforming loan - both business and consumer loans - and still have $22 billion in reserves left over," Mr. Chessen said.

"Financial institutions may not profit as much from their consumer accounts next year as they have so far this year, but they have sufficient capital to weather deterioration in the performance of their consumer loans," said Donald Ratajczak, director of Georgia State University's economic forecasting center.

While the three regulators said they were not alarmed by the slippage in consumer credit quality, they all said that their agencies are beefing up supervision to catch potential problems as early as possible.

Mr. Ludwig said that by yearend, the OCC would update its supervision of national banks' consumer credit operations by releasing new examiner handbooks on installment lending, credit cards, residential and home equity lending, and merchant processing.

The FDIC is conducting special quarterly exams of banks that specialize in credit card lending, Ms. Helfer said.

A task force of Fed examiners is reviewing the retail credit and credit scoring operations of several large bank holding companies, said Ms. Yellen.

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