Federal Reserve Board Governor Laurence H. Meyer said Monday that regulators should consider publicly disclosing examination ratings.
"The complexity of modern finance requires that we also move to strengthen the ability of market forces to discipline the potential for excessive risk taking at banks," Mr. Meyer said at the Conference Board's 1999 financial services outlook conference in New York.
"Great progress could be achieved in this area with improved disclosures by banks and banking organizations. Possibilities include more frequent reporting and the disclosure of credit-risk-modeling procedures, risk positions, and perhaps even supervisory evaluations."
Mr. Meyer did not elaborate further. Federal regulations bar disclosure of so-called Camels and bank holding company ratings.
Industry officials said they doubt the ban on rating disclosures would be changed. "This would be very controversial not just with bankers but with other regulators," said Karen M. Thomas, director of regulatory affairs at the Independent Bankers Association of America. "They have jealously guarded not just the ratings but the exam reports themselves. Historically, they have argued that exam reports are not audits and could be very misleading to the public."
Mr. Meyer's remarks were part of a broader analysis of bank merger policy. He gave a similar speech last week.
As mergers result in larger, more complex institutions, regulators must amend their exam procedures, he said. "Oversight has become much more continuous and risk-focused, he said. "We can no longer rely on periodic on-site examinations to ensure that these largest banking organizations remain sound."
The Fed is increasingly assigning a stable, designated team of examiners to individual institutions, he said, and it also is redesigning its computer systems to provide more timely financial data to examiners.
This new approach requires boards of directors to stay actively involved in setting limits on risk taking and ensuring that risks are adequately controlled, he said.
"Management is expected to develop and enforce the policies, procedures, and limits necessary to implement and conduct bank activities and to see that risks are adequately measured and identified," he said.
Mr. Meyer also questioned the need for many of the restrictions on mergers between banks and among banks, securities firms, and insurers.
Other than blocking deals likely to hurt small businesses and retail depositors, the government should maintain a hands-off policy toward mergers, he said.
"We should ... allow banks to take advantage of perceived opportunities to increase profitability by improving efficiency and leave it to the market to discipline errors made in this regard," he said.
Mergers have done little to harm competition in most markets, he said. Average concentration ratings are virtually unchanged, despite a 30% drop in the number of banks from 1988 to 1997, he said. Also, more than 3,600 new banks have been chartered since 1980, he said. "New entry into U.S. banking, primarily by small institutions, has been truly impressive," he said.