In the eight years he has served as president of the Federal Reserve Bank of San Francisco, Robert T. Parry has built a reputation as a consummate central bank professional.
He has been a forceful advocate for the commercial banking industry on matters such as expanded securities powers and interstate expansion, but has preserved his independence and credibility as a regulator.
A supporter of deregulation, Mr. Parry has enforced banking rules vigorously and turned the San Francisco Fed into an active promoter of affordable housing and community reinvestment.
Bankers describe the 54-year-old Pennsylvania native as level-headed and unflappable - a dependable spokesman for the Federal Reserve's point of view. On a personal level, he is cordial and informal in a fashion consistent with the dignity of his office.
Next year, Mr. Parry will become a voting member of the Federal Reserve's Open Market Committeee, the elite body that sets the nation's monetary policy.
A professional economist by training, the San Francisco Fed's chief has a reputation as a hard-line inflation fighter and is expected to align himself with the committe's militant anti-inflation wing.
Mr. Parry's 12th Federal Reserve district is thee most populous and diverse in the system. Currently it embraces both the nation's most troubled regional economy - California - and such vibrant business markets as Idaho and Utah.
During a recent interview in his San Francisco office, Mr. Parry showed he had mastered the arcane art of Fed Speak, framing his words cautiously and with calculated ambiguity.
Q.: How is the health of the banking industry in the 12th district?
PARRY: It's hard to talk about the 12th district without focusing first on California. California is actually moving in a different direction than the rest of the district and is still in the longest and deepest recession since the Great Depression.
So far this year we have had 17 bank failures in the district. All but two were in Southern California.
We have a very significant proportion of banks in Southern California under supervisory attention which means they are either a 3, 4, or 5 in terms of their CAMEL rating.
Q.: How are California banks coping with the downturn?
PARRY: Some of the largest banks in the state have been excellent performers in the last couple of years. They seem to have dealt very effectively with the problems they had with asset quality.
Several years ago there were some prominent security analysts who were commenting that the California economy was in for very tough times and that this would take a very significant toll on California banks, including the large banks.
What was incorrect about that statement was that the large banks dealt with the issues earlier than was generally anticipated.
Q.: But smaller California banks have not fared so well?
PARRY: Community banks - banks with less than $300 million in assets - have had a particularly difficult time, especially those centered in Southern California.
The different experiences of the very largest and the smallest banks illustrates that when you can't get geographic diversification it becomes difficult to ward off the problems of your local economy.
Even if you are a top-notch banker, if all of your business is in an area that is performing very poorly it is very hard to escape those problems.
Q.: Nationwide, has the banking industry solved its capital problem?
PARRY: Capital positions are significantly higher than they were a couple of years ago. But it would be tough for me to say that.
You would have to appraise that on an institution-by-institution basis, taking into account the orientation of a given bank's business.
Q.: Would you support a bank that proposed to buy back stock, thereby trimming capital?
PARRY: In some instances, there may be reason to support that. But I'm not sure the industry as a whole is suffering from an overcapitalized position.
Q.: Do you have any concerns about the growth of banks' mutual funds business?
PARRY: I worry, of course, that these are some people buying the products who may be relatively unsophisticated when it comes to financial issues.
In spite of the fact it is being laid out clearly to them that these don't have guaranteed returns and that they are not insured, the spirit of that conversation may be forgotten if times get a little rocky.
Q.: What are your thoughts about Mellon Bank Corp.'s purchase of the Dreyfus mutual fund group?
PARRY: Without commenting on the specifics of that transaction. it's a very interesting development.
One of the things that has concerned me about the participation of banks in the provision of mutual funds is what are the true costs of providing that product?
One of the advantages of the mutual funds industry is that companies can provide the product very effectively through telemarketing, which is very low cost. The Dreyfus deal is a way to capture that very efficient way of selling.
Currently, banks that provide mutual funds are doing it on a load basis for a fee. Longer term, there is probably going to be a tendency to eliminate loads. The Dreyfus transaction means that that bank holding company will be providing mutual funds on a no-load basis.
Q.: How do you respond to bank complaints that the enforcement of community reinvestment and compliance rules is arbitrary and overly expensive?
PARRY. Congress has passed laws that require that these regulations be adhered to What we've got to do is find ways to make sure that this adherence is done at the least possible cost to the banks.
Nobody is content with the current system. Banks say it is very expensive. And some of the people on the community side say it has not been sufficiently effective.
Q.: What CRA standards does a bank have to meet in order to have a merger application approved?
PARRY: It is important that they have satisfactory or better rating. But the fact that they have that does not mean that they will not be subject to regulatory scrutiny.
Q.: Lawmakers are criticizing the Fed's own record of promoting women and minorities. Isn't it true that almost all of your senior people are white males?
PARRY: We have made significant progress in the last seven or eight years. We think we have policies and programs in place that will produce greater progress. But have we made sufficient progress? The answer is no.
Q.: What do you think of proposals to combine the bank-regulatory agencies into a single super-regulator?
PARRY: Significant improvements could be made in the regulatory system. There is duplication. It is hard to understand why one needs four federal regulatory agencies.
I must admit, however, that some of the proposals I've seen give me some concerns. What should be the underlying rationale for the proposal is to reduce the number of regulators that a given institution faces.
I think we can do that without necessarily going to one single regulator that has a monopoly on regulation. Another very critical feature of any proposal is that it should maintain a regulatory system that is politically: independent. Frankly, I'm not sure that the proposals I've seen pass that test.
Q.: You are arguing then that the Federal Reserve should keep its supervisory function?
PARRY: I would like to see the Federal Reserve play a significant role in directly supervising some banks. The Federal Reserve has as one of its primary responsibilities to deal with financial crises.
I'm not able to see how we can accomplish that without direct supervisory authority.
Q.: You soon will become a voting member of the Federal Reserve committee that directs monetary policy. Your reputation is as an inflation hawk. Is that accurate?
PARRY: It seems to me that it is very important that we as a nation have as an objective to gradually reduce the rate of inflation.
That objective is still a good one and we should recognize that we have come some significant distance in achieving it. I don't know if that makes me a hawk or not.
Q.: If we haven't yet reduced inflation sufficiently, is there a specific level of price increases you could live with?
PARRY: No, there isn't a specific number. The characterization by Chairman Greenspan is a good one, that is trying to get the inflation rate down to the point where it is not an influence as far as decision making is concerned.
What that translates to as far as any given statistic is concerned is hard to say.
I'm willing to accept the idea that setting the goal of zero for any given index would probably be unwise.
But when you are standing at a point where the inflation rate is 3%, as measured by the consumer price index, I think we can agree further progress would be desirable.
Q.: So that means Bob Parry is aiming for an inflation rate somewhere between 0% and 3%?
PARRY: I would tell you that the number is probably closer to zero than 3.
Q.: Given your concerns about inflation, does that mean you favor maintaining a slow-growth economy?
PARRY: I think our growth has been relatively moderate. The prospects for 1994 are pretty good. Growth is likely to be around 3%.
In the very long term, I'm not sure what the potential growth rate of the economy is. It's probably a little less than 2.5%.
Those are objectives for the economy that are reasonable and certainly ones that could be achieved. But I don't think they can be achieved if we don't try to keep inflation under control.
