Banks Say They’re Prepared to Weather Market Slump

The chief U.S. banking regulator worries that a stock market slump could wipe out financial firms’ reserves, but the banks say they are well prepared.

“The banks are very well positioned in terms of capital and reserves,” James Chessen, chief economist at the bank group American Bankers Assn., said Friday. “Banks have set new records every year for the last five years in terms of capital and reserves, so they’ve been adding to them every year. And what we would call problem loans are very low by historic standards.”

The Wall Street firms also have strict requirements about the amount of stocks customers are allowed to borrow on margin, as well as their own in-house rules, for protection.

The firms responded to comments by Federal Reserve Chairman Alan Greenspan, who Thursday night advised banks to set aside more money for insurance against a market slump. His remarks helped fuel a major downturn on Wall Street on Friday, with banks among those hard hit. Chase Manhattan Corp. shares lost $4.44 to $66.50 and J.P. Morgan & Co. Inc. slid $4.38 to $106.50.