Monday that problems at Daiwa Bank's U.S. branch might have been uncovered earlier if examiners had been more diligent. "With the benefit of hindsight, there were some clues that were missed in the examination of Daiwa," Mr. Greenspan testified before the Senate Banking Committee. "With a more robust follow-up, the problem might have been found sooner." A single trader in the Japanese bank's New York office ran up $1.1 billion in losses over 11 years. The bank's managers tried to hide those losses from regulators, and the Fed responded on Nov. 1 by kicking Daiwa out of the country. Mr. Greenspan conceded that the Fed "did not succeed in unearthing Daiwa's transgressions where we might have." He added: "Hopefully, this event will stiffen our resolve." Mr. Greenspan said that when the first signs of trouble at Daiwa's U.S. branch were discovered in 1992, the Fed's examination staff was in the midst of a rapid buildup to enforce provisions of the Foreign Bank Supervision Enhancement Act of 1991. "It is possible that we had not yet developed adequate experience to implement our new responsibilities," he told the Senate Banking Committee. However, those shortcomings have been resolved, the central bank chairman claimed. "In the past two years, the Federal Reserve has implemented a number of initiatives to address these concerns," he said. The improvements include timely dissemination of information available to U.S. regulators and better contacts between U.S. supervisors and home country regulators of foreign banks. Mr. Greenspan told the Senate panel that his agency has a "full and appropriate range of powers" for dealing with situations like Daiwa. However, Senate Banking Committee Chairman Alfonse M. D'Amato said Daiwa's transgressions constituted "a disturbing picture of illegal conduct, cover-up, deception, and inefficiency." The New York Republican pledged to hold a series of hearings to investigate the conduct of the bank's executives, as well as that of regulators in the U.S. and Japan. "The American people need to know whether this was an isolated episode of a rogue trader and the corrupt or incompetent senior management of one bank, or whether the problems at Daiwa are more widespread," he said. Additionally, the failure of Japanese regulators to notify their U.S. counterparts of criminal violations by Daiwa is a serious breach of trust, Sen. D'Amato said. "If this episode is characteristic of the attitude of Japanese regulators toward compliance with U.S. laws, I seriously question whether there can be any basis for trusting and relying on the Finance Ministry or the Bank of Japan." Federal Deposit Insurance Corp. Chairman Ricki Helfer and New York Bank State Superintendent Neil D. Levin also testified. Ms. Helfer said there was little that FDIC examiners could have done to uncover improper conduct at Daiwa. "Like a medical examination, a bank examination is a disciplined look for discernible warning signs," she explained. "Where the warning signs are actively concealed, serious problems are less likely to be uncovered."

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