Currency and interest rate swasp carry multifaceted risks, even though they are used as risk-management tools in the multitrillion-dollar global derivates market.

Swaps and options are not uniformly quantified on the balance sheet. Nor are they monitored by regulators, despite declarations by the Basel Committee and other bodies on the need to establish capital-adequacy and related guidelines to govern counterparties.

For years the Basel group has promised to incorporate all forms of over-the-counter and exchange-traded derivatives into the risk-adjusted mix for bank international capital standards.

It has been very difficult to unwind the multibillion-dollar exposure of Bank of New England and other major players following collapses. This has highlighted the urgency of preemptive action and a coordinated response to contain future troubles.

This area can expect closer scrutiny, as indicated in recent speeches by E. Gerald Corrigan, chairman of the Basel Committee on Banking Supervision, and Alexander Lamfalussy, executive director of the Bank for International Settlements.

Hedging techniques carry risks in credit, market, and settlement that "give cause for concern," according to Mr. Corrigan. They "add to an environment of increased fragility," in Mr. Lamfalussy's view.

Individual institutions counter that they have developed sophisticated computer models insulating their operations from undue vulnerability.

But these in-house automated defenses do not necessarily prevent possible financial contagion, in the event that several counterparties simultaneously encounter difficulties. This situation is properly the responsibility of central banks and treasury ministers.

Advocates for maintaining the present laissez faire approach also draw parallels between the derivatives and foreign-exchange markets, the latter also regularly trading multibillion-dollar sums largely unhindered by regulators.

However, in the older pure foreign-exchange field, procedures are far more standardized and transparent. And, in the event of crises, financial overseers have devised tested rules for intervening both within and across borders.

Rules Being Aligned

No such practices or capabilities exist for foreign-exchange swaps and options.

At a recent conference of the Securities Industry Association, PaineWebber chairman Donald Marron expressed worry about the lack of derivative training and regulation.

Through the International Organization of Securities Exchange Commissions, brokerages are now working to align minimum equity rules with the ratios required by the Bank for International Settlements.

Members of the International Swap Dealers Association, the main derivatives trade organization, point out that capital guidelines must draw distinctions between gross and net positions.

Bankers in particular contend that offsetting obligations to clients should be excluded, since gross definitions would place them at a competitive disadvantage with smaller securities and insurance company rivals.

This assertion is the subject of a study of the Group of 30, the think tank based in Washington and London. In the early 1980s, G-30 launched a comprehensive review of derivative risk and expansion.

The G-30 effort due to be completed this summer, is laudable. But, like previous studies, it may only gather dust on regulators' bookshelves.

Meanwhile, a real crisis is foreshadowed by problems in major Japanese bank stocks and the liquidity of real estate giant Olympia & York.

In the absence of emergency detection and response capacity, the difference between gross and net positions will be moot and the other specialized dimensions of the field ignored.

Instead, officials will be forced to resort to the questionable ad hoc coordination that allowed the criminal Bank of Credit and Commerce International to operate unfettered for so long.

Dangers of High-Tech Finance

The Financial Accounting Standards Board will require formal disclosure of derivative transactions in shareholder communications, starting next year.

Mr. Kleiman is president of Kleiman International Consultants Inc., based in New York.

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