WASHINGTON - The president of the New York Federal Reserve Bank and the vice chairman of Daiwa Bank Ltd. met in New York nearly two years before Toshihide Iguchi confessed to hiding $1.1 billion in trading losses.

That much is undisputed.

The New York Times, quoting unnamed senior central bank officials, took the story a step further. It reported last week that New York Fed President William J. McDonough and Daiwa vice chairman Takeshi Ohta discussed Mr. Iguchi's dual role as broker and back-office supervisor at their Oct. 4, 1993, meeting.

If true, that would mean the Fed was aware of trading problems at Daiwa for two years yet did nothing.

The front-page story caught the attention of the House and Senate banking committee chairmen, who asked what went wrong at the New York Fed.

Nothing was astray, according to Fed officials, who disputed much of the Times account.

Fed spokesman Peter Bakstansky said the paper misconstrued the meeting. He said the two officials knew each other from Mr. Ohta's tenure at the Bank of Japan. So when Mr. Ohta was on the East Coast for the World Bank meeting he naturally asked for a courtesy call with Mr. McDonough.

"The meeting was a routine courtesy call," Mr. Bakstansky said.

The two primarily talked about the economy and the changing Japanese political climate, Mr. Bakstansky said.

They did talk about the need for internal controls at banks, he said, but the discussion didn't involve specific problems at Daiwa. Rather, it was based on several recent speeches Mr. McDonough had given, Mr. Bakstansky said.

"They never talked about Mr. Iguchi or his trading," Mr. Bakstansky said.

In fact, Mr. Bakstansky said Mr. McDonough never even knew who Mr. Iguchi was until the banker's Sept. 18 confession.

The Fed's examination schedule appears to support the central bank's version of events. The Fed, which gained supervisory authority over foreign banks in 1991, discussed the need for internal controls with Daiwa officials in 1992, the first time it had looked at the branch.

The discussions were in response to a March 20, 1992, supervisory letter from New York Fed Executive Vice President Chester Feldberg. The letter said the Fed had noticed that many banks had not separated their trading and back-office operations. It instructed examiners to check all banks for this problem.

Mr. Iguchi's dual role wasn't uncovered until the 1993 exam, which had just started when Mr. Ohta visited Mr. McDonough. Conclusions from that exam would not have even been reached, let alone sent to the main office.

A New York-based spokesman for Daiwa declined to comment, saying the bank never discusses meetings with regulators.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.