Though a recent regulatory survey of bankers who deal in derivatives eased concerns about controls, the industry as a whole was not given a clean bill of health and the need for more rules remains an open question.

After completing a review of several banks' approaches to managing risk in derivatives transactions, the Office of the Comptroller of the Currency last week reported the institutions had exceeded guidelines set forth in a 1993 regulatory circular.

"We knew beforehand that the particular banks we had chosen (for the study) were complying with our guidance, but we were surprised at some of the procedures that went above and beyond (the guidelines)," said Douglas E. Harris, senior deputy comptroller for capital markets.

"It's a clear indication that banks take seriously the control and management of credit and litigation risks," said Mr. Harris.

It also suggests that banks are aware of, and have appropriately responded to, the market gyrations of the last two years, he said.

"As to whether or not the survey will result in any change, we are considering that, but we have nothing in the works," said Mr. Harris.

Industry experts reacted to the report by saying that lawmakers and regulators should ease up on further oversight initiatives.

"What this really does is indicate the lack of need for additional legislation or regulation in this area," said John Duncan, a lawyer in the Chicago offices of Jones, Day, Reavis & Pogue. "Banks are responding well to the guidance that's already out there."

And that guidance, said Mr. Duncan, has started to become somewhat stifling. With 12 new pieces of regulatory guidance since February of last year, derivatives are being "regulated to death," he said.

However, Mr. Harris said that he was not confident that the results of one survey could be extended to the broader banking community.

"We only studied a few banks," said Mr. Harris. "There are thousands of them out there.

"We, as supervisors, have the responsibility to take the steps we consider appropriate to assist banks," he said.

Indeed, to help other banks achieve comparable levels of risk management prowess, the Comptroller's office compiled the survey results into a list of best practices.

Even so, experts said, the clean report card on banking's biggest derivatives players suggests banks are exhibiting self-discipline.

"The Comptroller's response suggests bankers are clearing an even higher hurdle - the one set by the marketplace," said Mark C. Brickell, the director of the International Swaps and Derivatives Association.

In addition to ensuring safety and soundness, banks are motivated to maintain good management practices in the name of customer retention.

"Dealers don't want to shoot their customers in the foot, because their own foot is usually underneath," said Mr. Duncan.

Left unresolved by the Comptroller's survey is the question of how much responsibility a bank has for the decisions of its customers, said Mr. Duncan, and what further steps regulators should take.

The Comptroller's primary goal is not to protect the investing public, said bankers, but to ensure the safety and soundness of banks. At the same time, high-profile client problems ultimately damage banks, regardless of which party is at fault.

"Can you treat someone who is sophisticated as being what he appears to be?" said Mr. Duncan. "This is an unresolved issue."

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