# O **NEWS RELEASE**

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| ## Comptroller of the Currency      | ##### NR 2001-50               |
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| Administrator of National Banks     |                                |
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FOR IMMEDIATE RELEASE Contact: Robert M. Garsson

May 22, 2001 (202) 874-5770

**Comptroller Hawke Tells Bankers That Regulators Must Respond**

**In Measured and Predictable Way to Credit Problems**

SCOTTSDALE, AZ \-- Comptroller of the Currency John D. Hawke, Jr. said
today that the OCC learned from the experience of the late 1980s and
early 1990s how important it is to maintain a supervisory approach that
is both carefully measured and predictable.

"Since becoming Comptroller, I've emphasized how imperative it is that
we fashion a carefully calibrated response to changes we see taking
place in the banks we supervise," Mr. Hawke said in a speech during the
annual meeting of California Bankers Association.

"But that doesn't mean sitting by silently as conditions deteriorate,"
he added. "It means addressing problems as we see them developing \--
incrementally \-- while we still may be able to do something about them
\-- and doing so consistently and in a measured way."

Mr. Hawke said banks play a critically important role in our economy, as
providers of the credit and liquidity that are necessary for economic
growth.

"It is my conviction that bank supervisors must stay focused on their
primary responsibility during times of economic stress to assure the
health of the banking system \-- and if they don't, they run the risk of
contributing to even greater problems in the economy," he said.

"The greatest contribution we as bank supervisors can make to the
maintenance of a healthy economy is to work with our banks to help
preserve their ability and capacity to extend credit to creditworthy
borrowers," he added.

The Comptroller told the California bankers that while such key
indicators as capital levels and earnings are strong, there is little
doubt that the industry will be tested in the coming months. Liquidity
and credit quality are two particular areas of concern, he added, noting
that banks throughout the country have grown increasingly reliant on
wholesale funding.

Surveys by both the OCC and the Federal Reserve show that credit is
tightening in many parts of the country, he said, but that seems to be
more the result of prudent risk selection in a slowing economy than any
fundamental impairment in the ability of banks to lend.

\- more -

In the current environment, bankers should renew their focus on the
fundamentals of risk identification and risk management, paying
particularly close attention to the adequacy of loan loss reserves, as
well as loan workout capabilities. Bankers should also evaluate the
reliability of management information systems and portfolio risk
management capabilities, he said.

The Comptroller said banks can expect considerable support from the OCC
as they deal with a more challenging environment.

"At the OCC, we have quite literally spent the last ten years preparing
\-- and helping national banks to prepare \-- for the same circumstances
we face today," Mr. Hawke said. Careful analysis has shown that sectoral
and geographic concentrations ranked high among the causes of the
problems of the late 1980s and early 1990s, as did an overreliance on
volatile net interest income.

"With that lesson in mind, we have worked to bring about the regulatory
changes necessary for banks to diversify their product lines and their
market areas, and to develop more predictable sources of fee income,"
Mr. Hawke said.

"We have defended the industry's right to charge reasonable fees for
these services, and to compete on equal terms with nonbanks in the
financial services marketplace," he added. "And we have argued
forcefully that banks should be free to rely on their judgment and
expertise in setting loan loss ratios at levels that they, and we,
believe is prudent, given the increased credit risk in the banking
system today."

The Comptroller said supervisors must be more vigilant than ever today,
since banks may try to maintain high returns and preserve market share
by going further out on the risk spectrum.

"To be sure, we must always be cautious not to overreact, for we have
learned how repressive supervision \-- or at least the fear of
repressive supervision \-- runs the risk of causing bankers to retreat
even from good credits," Mr. Hawke said. "But we have also learned that
we can pay a high price for forbearance and inaction.

"The balanced approach so strongly recommended by recent experience,
which we at the OCC are committed to, requires that examiners do their
jobs consistently, objectively, and impartially, without bending their
standards to accommodate a shifting economy," he added. "Only in that
way can we help to assure that our banks will maintain the capacity to
make good loans in bad times."

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  The OCC charters, regulates and examines approximately 2,200 national
  banks and 56 federal branches of foreign banks in the U.S., accounting
  for more than 55 percent of the nation's banking assets. Its mission is
  to ensure a safe and sound and competitive national banking system that
  supports the citizens, communities and economy of the United States.
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