NR 95-73
July 13, 1995

NOTE TO EDITORS

In the attached introductory remarks before the OCC Conference on
Foreign Banks in the United States, Comptroller of the currency
Eugene A. Ludwig announces that federal bank regulators will
publish in the Federal Register a proposed rule on capital
requirements for market risks in a bank's trading account.

The proposal would establish two alternative ways to measure
market risk -- a bank's own internal value-at-risk model, and a
"standardized" model designed by the Basle Committee of bank
supervisors.

"The proposal we are publishing reflects supervisors' efforts to
balance the need to minimize regulatory burden against the need
to measure and protect against market risk," Mr. Ludwig says. 
"We are interested in hearing whether the standardized model
provides an accurate and effective measure of market risk.  We
are particularly interested in comments from bankers on whether
we have set appropriate parameters for qualifying internal
models."

Mr. Ludwig says the Comptroller's Office is currently in 20
national banks gathering information on their internal models and
their ability to meet the requirements of the internal model
alternative.

The federal regulators are specifically seeking comment on how
results of the standardized model compare with banks' own
internal models, whether the proposal sets appropriate parameters
for qualifying internal bank models, and whether those parameters
would result in capital requirements that are significantly
higher than those of the standard model.


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                        Opening Remarks by

                         Eugene A. Ludwig
                   Comptroller of the Currency

                           Before the 
OCC Conference on Foreign Banks in the United States
                         Washington, D.C.

                          July 13, 1995



I want to welcome you this morning to this conference on foreign
banks in the United States -- the third in a series of
conferences sponsored by the Office of the Comptroller of the
Currency.

It has become something of a cliche to talk about the
globalization of banking and financial markets.  But like most
cliches, this one has a strong element of truth.  One piece of
evidence is the fact that banks operate outside their home
countries to a significant degree in all the G-7 countries.

This globalization of financial activities has led inescapably to
the need for greater communication, cooperation and coordination
among supervisors of banks in different countries.  In recent
years, much of this international consultation has been
effectively handled for bank supervisors through the Basle
Committee.  For securities concerns, the International
Organization of Securities Commissions -- IOSCO -- has been the
international focal point.  Within the past several weeks, the G-7 ministers have heightened their focus on the important work of
the Basle Committee and IOSCO, as reflected in the Halifax
Communique.

This renewed focus reflects, in part, the fact that technological
and computer advances have brought about changes in our domestic
financial markets and the kinds of financial products and
services banks provide, as well as in the operation of
international markets.  These changes have created new kinds of
risks for banks and have made it more important than ever for
supervisors to understand and anticipate problems in the banking
system -- before those problems become disasters.  And all this
has been happening at precisely the time foreign banks have
expanded their activities in the U.S. market.

Because of all these changes, U.S. supervisors have expanded the
scope of their supervision to include these new kinds of products
and risks.  For example, we have worked closely with bank
supervisors from other nations on the Basle Committee to develop
consistent approaches for measuring interest rate risk and
assessing capital adequacy to protect against market risks.

Within the next few days, the Comptroller's Office, the Federal
Reserve, and the FDIC will publish in the Federal Register a
proposed rule on capital requirements for the market risks in a
bank's trading account.  This proposal is based on a paper
released by the Basle Committee this past April.  The comments we
receive on our proposed rule will be an important part of our
discussions on this topic at the next Basle committee meeting in
mid-September.

The proposal we are publishing reflects supervisors' efforts to
balance the need to minimize regulatory burden against the need
to measure and protect against market risk.  The rule would
establish two alternative ways to measure market risk -- a bank's
own internal value-at-risk model (subject to specific constraints
on the parameters of that model), or a "standardized" model
designed by the Basle Committee.

We are interested in hearing whether the standardized model
provides an accurate and effective measure of market risk.  We
are particularly interested in comments from bankers on whether
we have set appropriate parameters for qualifying internal models
-- and whether those parameters would result in capital
requirements that are significantly higher than those of the
standard model.

We also encourage banks to comment on how the results of the
standardized model compare with those of their own models --
particularly in light of the proposed multiplier or scaling
factor of three that would be applied to internal models.  This
factor would be used to convert an internal model's estimate of
value-at-risk to a capital requirement.  One possibility
suggested by the Basle paper would be to link this scaling factor
to the accuracy of a bank's internal model -- that is, a less
accurate internal model might require a scaling factor greater
than three.

For all these reasons, examiners from the Comptroller's Office
are currently in 20 national banks gathering information on their
internal models and their ability to meet the requirements of the
internal model alternative.

At the Comptroller's Office, we have devoted considerable effort
to making sure banks have the ability to measure, monitor and
manage their risks from new or expanded capital markets
operations.  Two years ago, we began providing more detailed
guidance to banks on derivatives and other capital market
activities.

We have also implemented a program of examinations focusing on
risks for large banks.  Part of this program includes sending
quantitative analysts with our examiners to analyze interest rate
and market risk models that the banks themselves use to measure
risk.  Based on the feedback we've received from these banks,
they appear to find this new element in our examination useful.
The growing integration of foreign banks into the U.S. financial
markets adds another dimension to our supervisory
responsibilities, and that is why today's conference is so
important.  The agenda is designed to help all of us gain a
better understanding of how foreign banks operate in the U.S.,
including the challenges faced by those banks, and the challenges
we face in supervising their activities.

We will explore these issues in four sessions today.  The first
will be devoted to the results of recent research conducted by
staff at the Comptroller's Office and the Board of Governors of
the Federal Reserve on foreign bank operations in the U.S.

In the second session, you will hear from the four government
agencies most heavily involved in supervising foreign banks --
the Comptroller's Office, the Federal Reserve, the FDIC, and the
banking department of New York State, where the largest
concentration of U.S. offices of foreign banks is located.

From my standpoint, this is an invaluable opportunity for us to
hear from you what you think we are doing right and where we need
to change to make our supervision more efficient and effective.

The third session will focus on the legal and regulatory
framework that governs the operations of foreign banks in the
U.S., as well as looking at the experience of a U.S. bank
operating aborad.  And, finally, in our concluding session this
afternoon, we have asked four senior financial figures to step
back and tell us their views of the system as a whole.  I will be
moderating that panel, and I'm looking forward to a lively
discussion.

Now, I have the great pleasure of introducing our keynote
speaker.  I'm sure Bill McDonough is familiar to all of you as
president and chief executive officer of the Federal Reserve Bank
of New York.  He is also vice chairman of the Federal Reserve's
Open Market Committee and a member of the board of directors of
the Bank for International Settlements, where he is chairman of
its Committee on Payment and Settlements Systems.  From all of
his various responsibilities, it should be evident that Bill is
closely involved in the workings of the U.S. banking system and
its interaction with other major banking systems around the
world.

Bill is also an experienced banker.  He knows first-hand what it
means to run a bank and deal with government supervision.  Before
he joined the New York Fed in 1992, he spent 22 years at First
Chicago Corporation, where he rose through the ranks to become
vice chairman of the board and a director of the bank holding
company.  He also served as advisor to the World Bank and the
International Finance Corporation and as a special advisor to the
president of the Inter-American Development Bank.

Please join me in welcoming our keynote speaker, Bill McDonough.


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