WASHINGTON -- Top regulators gave the bank and thrift industries a clean bill of health Thursday, but were lectured sternly by one prominent lawmaker on the need to eliminate discriminatory lending.

Senate Banking Committee Chairman Donald W. Riegle, DMich., told the regulators that ending discrimination is "just about the most important thing we have to do" for the country.

"We have a distance to go here in having our institutions work in a way that is truly colorblind," Sen. Riegle said in closing what is likely to be the last major heating of his legislative career.

"It is just wrong, and it can be fixed," he added. Sen. Riegle is not seeking reelection and will retire in January. He urged regulators to pressure the banks they oversee on the matter. "I don't want somebody showing up at a financial institution and being turned away because they are black - there is too much of that." said Sen. Riegle, his voice rising.

"Anybody that doesn't like that ought to get out of the financial system, be it the private part or the public part," he warned.

The regulators who appeared before the Senate Banking Committee Thursday painted a bright picture of the industry, arguing that banks and thrifts are in better shape than they have been in some time. However, they also raised some warning flags.

"Banks are adapting to, and participating in, the changes sweeping the financial services industry, as well as being severely challenged by them," said Federal Reserve Board chairman Alan Greenspan. Current conditions are "very good" but the industry, Congress, and the regulators need "to look to the long term as well."

Mr. Greenspan further tempered his optimism by cautioning that banks should be prepared for future downturns by maintaining adequate general reserves. He also warned that banks may be relaxing their credit standards to compete more aggressively for loans.

The regulators expressed the sentiment that derivatives and other nontraditional instruments are necessary to help banks remain competitive with nonbanks.

Comptroller of the Currency Eugene A. Ludwig said derivatives allow banks to manage risk more efficiently than other instruments.

'The recent growth in derivatives markets has created new challenges for bank supervisors due to the complex nature of the financial instruments," Mr. Ludwig said. "The OCC is working hard to ensure that banks using these instruments clearly understand and properly manage the associated risks, and that banks have the financial resources to withstand market volatilities."

The OCC is currently completing new examiner guidelines and examination procedures which will include procedures for examining derivatives activities in national banks, Mr. Ludwig said.

Although Acting Director of the Office of Thrift Supervision Jonathan Fiechter said that the overall financial condition and performance of thrifts and savings associations have "improved dramatically" since the crises of the 1980s, he said that the disparity between the Bank Insurance Fund and the Savings Association Insurance Fund is a critical issue for the thrift industry.

"Savings institutions may in the future pay insurance premiums that are more than three times higher than their commercial bank competitors," Mr. Fiechter said.

Also appearing before the committee were Andrew C. Hove, acting chairman of the Federal Deposit Insurance Corp., and Norman E. D'Amours, chairman of National Credit Union Administration.

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