decision to boot Daiwa Bank Ltd. out of the country, and said the action was intended to be a strong signal to the international community. "Clearly, the regulatory authorities want to send a message to the international banking community that if you want to be a player in the United States, you'll have to comply with U.S. regulations," said French banker Serge Bellanger. "My personal reaction is that I'm not surprised, and most of my colleagues in the foreign banking community share that view," said another senior European banker, who spoke on the condition of anonymity. Mr. Bellanger, executive vice president and genral manager for Compagnie Financiere de CIC et de l'Union Europeene in New York, said the Fed had not been unduly harsh in dealing with Daiwa. Unlike past instances of trading fraud at Salomon Brothers Inc. and Kidder Peabody, the Daiwa case involves charges that senior management concealed the losses from regulators. "The difference between Daiwa and Salomon and Kidder Peabody is that in Daiwa's case there was a time lag in notifying authorities," Mr. Bellanger said. "That's a major violation." "If I were a regulator and felt like I had been taken to the cleaners, I think I would have reacted the same way," said a German banker. "When you think of where they're coming from, this kind of action is warranted." David Marshall, a banking analyst in London with the rating agency IBCA Ltd., said Daiwa's efforts to cover up its losses after consulting with Japan's Ministry of Finance rather than U.S. banking authorities left U.S regulators little choice. "What it boils down to is that Daiwa continued reporting a financial position which was inaccurate to U.S. regulators," Mr. Marshall said. While bankers defended the Fed, some took exception to the decision by the U.S. attorney for the Southern District of New York to prosecute the Japanese bank. "I was kind of surprised at the rush by the U.S. attorney because they didn't prosecute similar indictments against Salomon, Kidder, or Prudential," said David Bodner, executive vice president for Bank Julius Baer and chairman of the Institute of International Bankers. Mr. Bodner argued that the cases weren't that different, except for the nationality of the institution involved. "It's not as if any U.S. residents lost any money," he added. International bankers expressed the hope that regulators' anger at Daiwa's attempts to conceal the loss would not lead to a general condemnation of foreign banks. However, they said tougher scrutiny of foreign bank branches and agencies is inevitable. Japanese bankers, in particular, said they have received requests from their parent banks as well as Japanese regulators for detailed explanations of their operations and operating procedures. U.S. and foreign bankers brushed aside concerns that the decision to shut down Daiwa might trigger retaliation in Japan. They noted that U.S. and Japanese regulators have been steadily increasing their cooperation over the past few years and that the Japanese government is unlikely to want to endanger a multibillion-dollar line of credit the Fed recently extended as a safeguard against a liquidity crisis among Japanese banks. "I don't think that they would retaliate," said Kai S. Nargowala, a former senior international executive at BankAmerica Corp. "I think the authorities in Japan would be just as embarrassed (as the American regulators) and don't intend to start a tit for tat," he said. Barton Crockett in San Francisco contributed to this article.

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