Gonzalez asks CBO to study banks' use of derivatives.

WASHINGTON House Banking Committee chairman Henry Gonzalez is calling on the Congressional Budget Office to examine the banking industry's increasing involvement with derivatives and other risky financial products.

The Texas Democrat said he wants to find out how banks' inclination toward marketing derivatives, mutual funds. and insurance -- while spending less time on traditional lending functions is affecting borrowers and the financial industry as a whole.

Gonzalez is requesting that the study be completed by with an interim report the Banking Committee in 1995.

Gonzalez said he is "that some in the banking which has for homes and the marn credit turning ward more vestments ."

The plunge into those investments has caused Gonzalez to "question whether banks are doing their utmost to source out potential borrowers." he said.

As part of its study, the CBO should examine "whether the shift of moneys out of the banking system to nonbanking business has affected the economy's cyclical and growth characteristics." Gonzalez said. "I have asked how this shift of moneys has affected the formulation and impact of monetary policy."

Gonzalez noted that the Federal Reserve recently shelved its use of the monetary aggregates in judging the affects of monetary policy because highly liquied bond and equity funds that are not included in the aggregates have become effective substitutes for some part of the traditionally measured money supply.

"This could suggest in turn, that the transmission of impulses could become dirrerent and its impact possibly less effective in the future in the past." Gonzalez said.

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