REBOUND ON WALL STREET : Bankers : Praise for Fed at Industry’s Trade Meeting
Bankers attending the industry’s major trade meeting on Monday praised the Federal Reserve Board for calming financial markets with assurances over the weekend that the banking system would get the money it needed in a liquidity crunch.
“I think there is a mechanism in place and obviously it seems to be working very, very well,” said Thomas P. Rideout, vice chairman of First Union National Bank of North Carolina and outgoing president of the American Bankers Assn. The association is holding its annual meeting this week in Washington.
One major fear was that banks might get skittish if the selloff continued and would cut off lines of credit to brokerage houses and mutual funds. But bankers said they were assured by the Fed’s clear signals that it would inject money into the banking system to prevent financial chaos.
“The facts are they really didn’t have to do a lot. They made it very clear,” said Thomas G. Labrecque, president and chief operating officer of Chase Manhattan Corp. in New York.
In an interview, Comptroller of the Currency Robert L. Clarke said he did not believe through the weekend that large amounts of cash would have to be injected into the system nor that market makers on Wall Street would have trouble obtaining sufficient credit.
As it happened, the Fed added about $2 billion--not an unusually large amount--to the system about two hours after the stock market opened.
“What the Fed is saying is that we are prepared to go the extra mile to provide liquidity,” Clarke said. “Its not as though the system is liquidity short. There’s a lot of liquidity to support market makers without the Fed even saying anything.”
‘Been Through It Before’
Clarke also credited the Fed with handling the market selloff responsibly by assuring the financial markets. He credited experiences learned in the October, 1987, market crash with helping to stabilize the financial markets.
“There definitely was a feeling that we had been through this drill before,” Clarke said. “I think it gave people a different feeling of confidence that you can suffer a pretty significant drop in the market and everybody is prepared to deal with it.”
Fed Chairman Alan Greenspan made his first public appearance since Friday’s market plunge in a speech at the bankers convention about an hour after trading opened on the New York Stock Exchange. There was an air of nervousness in the crowded room as he began his remarks.
Greenspan addressed the stock market issue for less than one minute, saying only that Fed officials had watched overseas markets closely and were monitoring activity. He then went on to speak on his main topic, that the level of risk in the banking industry is higher now than in the recent past and that banks would be wise to maintain high capital levels.
Indeed, some bankers said they were reassured by the fact that Greenspan went ahead and delivered his speech on the mundane topic of bank capital instead of canceling his speech to the trade group as he did two years ago in the wake of the October, 1987, crash.
