Reacting to the collapse of Barings PLC, London, federal regulators on Monday asked major U.S. banking companies to detail their exposure to the derivatives trading debacle.
After collecting responses from nine banking companies, Douglas E. Harris, a senior deputy comptroller at the OCC, said American institutional exposure to the losses appeared minimal.
The banking companies included in Monday's survey were Citicorp, BankAmerica Corp., First Chicago Corp., Chase Manhattan Corp., NationsBank Corp., First Union Corp., Banc One Corp., Wells Fargo & Co., and Bank of Boston.
Several institutions, including Bankers Trust New York Corp., issued statements saying they had not been placed at risk by the Barings debacle. And many observers said they doubted that big U.S. banks were assuming trading risks of the magnitude seen at Barings.
Still, fresh concerns about derivatives again gathered around trading institutions on Monday, with issues such as disclosure, regulatory oversight, and stock trading values given fresh attention.
"The Barings issue underscores the problem, as did Orange County, of the difficulties that are going to be around the corner," said House Banking Committee Chairman Jim Leach.
"We in the legislative session and those in the government can no longer put a head too deep in the sand on derivatives issues," the Iowa Republican added.
At Barings, a 28-year-old trader - who has since fled the country - apparently made a bet of more than $750 million on the direction of the Nikkei Index of Japanese stocks. The strategy backfired, bankrupting the venerable institution that had financed the Louisiana Purchase.
Although the bonds of American banks appeared unaffected by Barings' undoing, the stock of several institutions dipped. Bankers Trust fell by 75 cents, closing at $62.75, and Citicorp fell 50 cents to $44.25.
Treasury Secretary Robert Rubin said American banks already have the power to engage in the kinds of derivatives activities that got Barings in trouble. He expressed confidence, however, that "given the control and the regulatory process we have in this country, "it is unlikely that any U.S. bank could get in that much trouble by making bets in the derivatives markets.
The OCC's Mr. Harris said that a federally chartered bank "would not have been able to engage in this activity." He explained that national banks may engage in equity derivatives transactions for risk-management purposes but are barred from speculating with the instruments.
At the same time, industry followers and legislators viewed Barings' demise as a potential wake-up call.
"One of the silver linings in a cloud like this is that it often sends managers back to their own institutions to check their positions and procedures," said Mark Brickell, vice chairman of the International Swaps and Derivatives Association.
American market experts said better management control and monitoring of derivatives is needed.
What the Barings debacle illustrates is that a single individual can have a devastating impact on a trading operation, said Ann Robinson, a fixed-income analyst at Bear Stearns & Co.
What is more, traders can be highly tempted to act on their speculative instincts.
"There is an interest to get involved in derivatives because of the profit potential," said David Hendler, an analyst at Smith Barney. "But the risk management systems have not caught up with traders' natural tendencies to seek higher profits."
Notwithstanding these concessions, several experts downplayed the need for additional regulatory oversight.
Mr. Brickell of the swaps association said Barings "was a regulated merchant bank trading in a regulated futures market. It's hard to see how more regulation solves the problem."
One analyst likened Barings' derivatives losses to an airplane crash: "They are spectacular and highly noticeable, but the sum total of the losses are relatively low by comparison to other losses in other risks."
Barings' assets appear up for grabs.
Market rumors had National Westminster Bank PLC buying Barings, sending the British bank's shares sharply downward on the London stock exchange.
Robyn Meredith, Daniel Kaplan, and Olaf de Senerpont Domis contributed to this report.