Volcker urged banks to weigh risks in takeovers.

In a letter to the subcommittee on domestic monetary policy of the House Banking Committee, Fed Chairman Paul A. Volcker said the Fed was continuing “to monitor merger activity and to urge banks to maintain prudent lending practices in evaluating merger loans.” In his letter, dated March 1, Volcker said: “Acquiring firms that take unwarranted risks through leveraging increase the risk exposure of those institutions and other investors that provide the credit.” He added: “Because collateral may be particularly important in merger transactions that involve large amounts of debt, banks have been urged to be mindful of the potential risks.”