Megadeals Raising Worries, Comptroller's Risk Czar Says

Michael L. Brosnan was named national bank risk czar Wednesday, and in an interview he said recent merger megadeals and others likely to follow pose new worries for regulators.

"Huge institutions will be allowed to make much larger transactions with one customer," the veteran supervisor said. "It's not just loans, but also bond holdings, foreign exchange transactions, and other dealings."

Former Comptroller of the Currency Eugene A. Ludwig created the post of deputy comptroller for risk evaluation in June 1996 to improve response to emerging problems in the national banking system. G. Scott Calhoun, the first person to hold the job, left last fall to become director of supervision for the Office of Federal Housing Enterprise Oversight.

Though megamergers are intended to help banks diversify their traditional business portfolios, Mr. Brosnan said some behemoths might instead choose to concentrate on too many "big-time global clients."

"If these loans are not managed well, banks could end up with a 'lumpy' portfolio that is more affected by an economic downturn," he said.

Also, if a big customer defaulted, the resulting publicity would hurt the bank's reputation, leading other customers to question its safety, he said.

Megabanks would also have to make sure that personnel cuts don't overwhelm management's ability to oversee far-flung operations. "You can stretch people's capacity to follow what the firm is doing," he said.

Merging technology systems properly and quickly would also have to be a top priority, according to Mr. Brosnan. "Creating a coast-to-coast operation doesn't make sense if a customer can't use the bank's ATMs in another state."

As for the rest of the banking industry, Mr. Brosnan repeated the agency's mantras of the past few years. He said banks should improve their underwriting standards and increase the use of computer models to identify concentrations of credit.

Mr. Brosnan has been acting deputy comptroller for risk evaluation since November. He also directs the agency's Treasury and market risk division, which sets policy for bank securities and derivatives trading.

In his 15 years with the agency, Mr. Brosnan also has been a large-bank examiner in the Chicago and Miami offices.

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