Federal Reserve Board Governor Roger W. Ferguson Jr. on Tuesday warned banks against rushing to merge with insurance and securities firms.

"The movement to financial conglomerates may prove transitory," Mr. Ferguson said at a conference sponsored by the University of Massachusetts, Boston.

"This business strategy surely is not for all financial services firms."

Efforts 15 years ago to create financial supermarkets flopped, he said, pointing to the Sears, Roebuck and Co.-Dean Witter-Coldwell Banker and American Express-Shearson mergers as examples.

"Despite the enthusiasm for financial supermarkets in the early 1980s, by the end of the decade the concept had stagnated and the press instead reported the benefits of specialization and the provision of niche services," he said.

Mr. Ferguson questioned the two prime reasons for creating conglomerates: economies of scale and diversification of risk. Historically, conglomerates have not been able to deliver products more efficiently than niche players, he said. Also, it is very tough to manage risk across different types of businesses, he said.

"Before any steps toward conglomeration are taken, each potential participant in such a merger must judge whether this extraordinary set of skills is to be found in any managerial team," he said.

Despite these challenges, Mr. Ferguson said he expects more financial companies to create conglomerates once Congress reforms banking laws. "I would not be surprised at a wave of cross-industry mergers within the financial sector, particularly among the largest firms," he said.

A surge in cross-industry mergers would force the Fed to review its antitrust policies, he said. This would include evaluating the effects of mergers on automated teller machine and point of sale networks, he said.

Regulators also would have to rely more on market forces to keep financial firms in check, he said. For instance, financial conglomerates might be required to issue subordinated debt, the market price of which would reflect the riskiness of the institution's investment portfolio. The government also could increase the transparency of these firms by requiring them to publicly detail their financial holdings, he said.

Mr. Ferguson never mentioned Citigroup, the financial conglomerate formed this month by the merger of Citicorp and Travelers Group.

In an unrelated speech given Monday in Louisville, Ky., Federal Reserve Bank of St. Louis President William H. Poole said the bond markets appear to be recovering from the recent credit crunch.

"There are straws in the wind suggesting that the flows of financing through the markets are picking up once again and that we are headed back toward a more normal state of affairs," Mr. Poole said.

Investors, surprised by the Russian debt default, ran for cover in safe Treasury securities, he said. This caused spreads to soar between corporate bonds and Treasury securities, he said. These spreads, however, are starting to fall as investors-attracted by abnormally high rates-return to the bond market, he said.

Mr. Poole also predicted the economy would continue to grow next year, noting that since the government begin keeping records in 1850 there has never been a recession during a period of declining inflation, falling interest rates, and rising money growth.

"I've learned never to say that something is impossible in this business, but we must form our judgments from our experience and to me it seems unlikely that a recession is either already under way or just around the corner," he said.

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