NEW YORK -- E. Gerald Corrigan, president of the Federal Reserve Bank of New York, called last week for a stronger international commitment to regulatory policies that reward strong and prudent banks while penalizing the weak and reckless.

"The many strong and well-managed institutions should not be held hostage to the supervisory policies and practices that are driven by the mistakes or misdeeds of the few," Mr. Corrigan said in a major address to the International Conference of Banking Supervisors in Cannes, France. A text was released in New York.

He said that while the banking industry is preoccupied with the "daunting task" of keeping pace with technology and financial innovations, "we should remember that, almost without exception, the most serious banking problems ... encountered in recent years have grown out of old-fashioned difficulties with bad loans and excessive concentrations."

Advises Caution

Reiterating his concern about potential breakdowns of entire banking and payment systems, he said bankers "would be well served to operate on the assumption that systemic risk may be greater as we look ahead."

Mr. Corrigan cited new linkages and interdependencies among markets and institutions that have the potential to transmit problems and disruptions "from place to place and institution to institution at almost breakneck speed."

Thus, he argued, bank supervisors must be concerned about the growth of off-balance-sheet and related activities and about the financial and operational integrity of national and international payment and settlement systems.

Says the Worst Is Not Over

It is premature for banks and bank supervisors to conclude the worst of the industry's problems is over, he said.

"One very forceful reminder as to why I hold that belief can be found in that fact that so many countries - starting with my own - are mired in patterns of subpar economic growth," Mr. Corrigan said.

He said the causes are partially related to credit-induced real estate and other asset price bubbles during the late 1980s.

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