Calling for customized regulation, Federal Reserve Board Chairman Alan Greenspan sketched the future of bank capital rules in a speech Monday.

"A one-size-fits-all approach to regulation and supervision is inefficient and, frankly, untenable in a world in which banks vary dramatically in terms of size, business mix, and appetite for risk," he told 740 bankers attending the annual American Bankers Association conference.

Plain-vanilla banks can expect simpler capital requirements; current risk-based rules will be tweaked for larger, more complicated banks, the Fed chief said.

Federal regulators, he said, are considering "a standardized capital treatment involving a quite simple regulatory capital ratio that might become applicable to the vast majority of institutions that are not internationally active."

For more complex banks, "change might involve such modest refinements to current capital requirements as closing certain loopholes and basing some risk weights on available external credit ratings," he said.

However, bigger changes are in store for the world's largest banks, Mr. Greenspan said.

International regulators, through the Basel Committee on Banking Supervision, are revising the 1988 capital accord to tie reserves more closely to the risks facing a particular bank. Mr. Greenspan said he expects that supervisors eventually will use a bank's own internal risk rating systems to set capital requirements.

"The focus of supervision and regulation especially for the larger institutions should be even less on detail and more on the overall structure and operation of risk-management systems," he said. "Over time, our examination process for assessing bank capital adequacy would try to use the same techniques that banks are, and will be, using to evaluate their risk positions and the capital needed to support these risks."

These banks, Mr. Greenspan said, should also expect to disclose more information about their operations. "Supervisors have little choice but to try to rely more, not less, on market discipline -- augmented by more effective public disclosures -- to carry an increasing share of the oversight load," he said.

The scale and clarity of disclosures by banks could be "considerably improved," Mr. Greenspan said, adding that he would like to see more data on loans by risk category and on residual risk retained when assets are securitized.

"Our intent is to consult with the industry regarding the establishment of new disclosure standards and ways to evaluate their application," he said.

Also speaking at the ABA gathering, Comptroller of the Currency John D. Hawke Jr. reiterated a theme his agency has been emphasizing: Solid lending is not based on optimistic assumptions about the future. "We must face the facts as they are, not as we might wish them to be," he said.

At a press conference, Mr. Hawke singled out commercial loans where repayment is heavily reliant on optimistic increases in sales volume. "They will make a rather conventional loan secured by whatever receivables or collateral the buyer has, and then they'll make a second or third traunch loan that isn't due for seven or eight years," he said. "Our people feel those second or third loans are worse than unsecured.

"Even the bankers call these loans 'air ball' loans. ...They're lending on air, they're lending on the expectation" that the borrower is going to meet optimistic goals.

Mr. Hawke also said his agency's peer analysis tool will be ready in November. National banks will be able to use the "comparative analysis report" free of charge to compare their performance against that of any peer group they specify.

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