Fed Freshman Urges Initiative in Lending to Poor

susan Phillips has been a professor, an economist, and a commodities regulator. But until last December, when she became a member of the Federal Reserve Board, she hadn't spent much time on bank regulatory issues.

Six months at the Fed have changed that. Last week, Ms. Phillips gave her perspective on key banking issues to American Banker reporter Debra Cope.

American Banker: Congress has been giving bank regulators very specific guidance for making rules. What does that mean for the Fed, and for banks?

Susan Phillips: The more specific the laws is, the less flexibility we have in making judgments. It makes the job a little more difficult for us.

It also doesn't allow us to quickly recognize changes in the industry or changes in the markets. It means we can't respond quite as quickly to technological developments sometimes.

But I don't think it takes away from the Fed's authority.

AB: Will higher capital get Congress to ease up?

SP: That's certainly one factor, but capital is not a panacea. Once the Bank Insurance Fund is stabilized and once we get to stronger risk-based capital levels so that the industry is strengthened, I think that will reduce some of the concern.

But I think a good bit of it is a question of demonstrating what type of job bankers are doing - in community investment, for instance

AB: Bankers got a jolt last year when the Fed found widespread discrimination in mortgage lending. What's ahead?

SP: The Home Mortgage Disclosure Act doesn't gather all of the relevant information. It's masses of data, but we're now going to have to do some followup.

We're looking at what kinds of factors go into loan decisions.

AB: Bankers gripe that secondary mortgage market standards get in the way of lending in poorer areas. Are you looking at that?

SP: Yes. That is certainly a consideration. But if we find out than those are the kinds of things that make a difference, it's really not the Fed or the regulatory agencies that would reset those standards. I think we'd hope to see some leadership from the banking industry in changing things.

AB: What's the outlook for bank mergers?

SP: The question is, in which markets is there excess capacity? Where can savings be achieved? To the extent savings are possible, banks are looking at those kinds of opportunities.

The interstate branching restrictions have skewed a bit the way banks might like to organize themselves.

Also the evidence on mergers is a bit mixed as to whether or not savings are possible, or whether you're just coming out with a larger entity.

We probably have more work to do in this area. From the results of the studies so far, you really can't draw too many generalizations as to when a merger is likely to be successful and produce savings.

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