NEW YORK - Richard Syron, president of the Federal Reserve Bank of Boston, joined a growing number of Fed officials in strongly opposing President Clinton's proposal to deprive the Fed of bank regulatory functions.
Mr. Syron also said there had been a slight improvement in loan demand, the commercial real estate market had established a bottom, there would be a modest improvement in inflation in 1994, and that economic activity would slow in the first quarter, but would not collapse.
In an interview Friday, Mr. Syron said that the Fed must have bank regulatory functions to "prevent financial fragility."
Key Role in Economy
"The economy is not an antiseptic thing, and economic policy is not an antiseptic thing," the Boston Fed president said.
"It works through institutions." he added.
Under the current system, the Fed, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Office of Thrift Supervision regulate the banking industry.
President Clinton's proposal would have bank regulatory functions concentrated in a single Federal Banking Commission with a five-member board, of which the chairman of the Federal Reserve would be a member.
"Monetary policy still works through banks,' Mr. Syron said. "In that regard, you need to work with them."
Warming to the theme of bank regulation, the Boston Fed president said that to adequately conduct monetary policy, the Fed must have knowledge about bank operations and to that extent, "we have to have a presence" in the banking industry through regulatory functions.
Giving the example of the Boston Fed's district, which includes the New England states, Mr. Syron noted that the Fed endured a "very, very difficult period" when several banks and credit unions were in financial distress.
Turnaround in New England
A number of credit unions in Rhode Island and commercial banks in New Hampshire, as well as the Bank of New England in Massachusetts, folded.
The financial difficulty of the New England area "is over now," Mr. Syron said. "We were very, very deeply involved in that, and with some success.
"I'm confident we wouldn't have been able to do that" without the regulatory function.
Meanwhile, consumption expenditures, which have been strong through most of 1993, are likely to taper off next year, Mr. Syron said.
"You will see some softening of consumption, but not as dramatic a change as we saw from fourth quarter of |92 to the first quarter of '93," he said.
Personal consumption plunged to an annual rate of 0.8% in the first quarter, from an annual rate of 5.1% in the fourth quarter of 1992
However, consumption expenditures turned up in the second and third quarters of this year, when they grew at 3.4% and 4.4%, respectively.
Economists say that consumption expenditures are likely to be just as strong in the current quarter.
Finally, Mr. Syron said more improvement in inflation was likely in 1994. Consumer prices rose at an annual rate of 2.8% in this year through November, a slight improvement over the 2.9% rate for all of 1992.
"I would hope over time to continue to see an improvement [in inflation], but it won't be dramatic," Mr. Syron said.