New Fed Supervision Chief Eyes Risk

federal regulator not long ago characterized bank supervisors as the people who take away the just when the party starts getting good. Richard Spillenkothen, the Federal Reserve Board's new director of supervision regulation, isn't a man to be drawn into commentary by catch phrases. When asked in a recent interview with ABA Banking Journal if he agreed with the punchbowl view, he was much more discursive. The supervisor's role, Spillenkothen believes, is to pick probe at a banking organization for weaknesses through regular, on-site examinations. Our job is to point out where there is risk, says the Fed director, and to make sure the bank has identified it. That involves making sure the bank has adequate internal reporting systems so the board of directors knows what the risks are, says Spillenkothen. Then, Spillenkothen says, the Fed expects management to take steps to limit identified risks. If they don't, he adds, have tools to step in do that. As certain segments of the industry work through the aftermath of excesses in commercial real estate other risky lending, Spillenkothen declines to predict any looming trouble spots. And while he notes that some caution is warranted in consumer lending, he's more inclined to counsel banks against piling in any one type of credit, to reiterate the Fed's emphasis on the need for adequate capital. One of the things about the job here is that get paid to worry about a lot of things, says Spillenkothen. Fed's nem man. Formerly second-in-command in his division, Spillenkothen was promoted to the top slot last fall when his predecessor, William Taylor, became chairman of FDIC. Spillenkothen's career with the Federal Reserve started in 1976 with a stint as review examiner. On the whole, Spillenkothen is upbeat on the industry's condition. He notes that yearend numbers indicate that the industry's level of nonperforming assets dipped below 1990 levels. He is pleased that, in spite of its much-publicized problems, the industry has been able to strengthen its capital levels, in the aggregate. Nevertheless, he notes that you can't go through the kind of thing we've gone through in the last couple of years without being concerned that we get a handle on underwriting standards. Spillenkothen doesn't think banks need to be stodgy to be sound. He does insist that they be prudent. Banks can still make money in plain vanilla banking, doing the things that banks have always done, says Spillenkothen. He says this doesn't mean that banks shouldn't be innovative or unresponsive. But it does mean that before they do something new, they should review all the risks involved, understand them, review them with senior management the board, have capital in place, he says. That said, Spillenkothen thinks steps must be taken to ensure that banks can become competitive domestically internationally. This leads to the question of what powers banks should have. Spillenkothen notes that the Fed has favored broader securities powers for banks broader interstate banking ability. Such liberalizations, he says, are consistent with banks' knowledge, infrastructure, ability to engage in financial transactions. …