Volcker Sees Rocky Path for Many Banks
Federal Reserve Chairman Paul JA. Volcker this week described the ^Continental Illinois bank situation as ^unique for a large bank/Ûª but acknowledged that some smaller institutions are in trouble and that the Jentire financial system is under Strain.</br></br>ÐÊ% Many institutions, big and little, Jjhave loans on their books that borrowers canÛªt repay, and not all of %hem have enough capital to absorb fall the resulting losses.</br></br>Larger banks able to acquire ^funds in the money marketsÛÓas 'opposed to getting them from regular depositorsÛÓare vulnerable to ^ny loss of confidence because it ^could close those markets to them, leaving such a bank unable to finance the loans it has already made. t Volcker told the Senate Banking ^Committee that no other large bank Jwas so dependent upon these so-called purchased funds as Continental. Nevertheless, if Continental had $>een allowed to fail, other major vbanks could have followed.</br></br>The massive federally financed fescue of Continental underscored 'the determination of the Federal ^Reserve, the Federal Deposit Insurance Corp. and the Comptroller vOf the Currency not to let its troubles jeopardize the safety of other ^institutions or, conceiveably, the financial system itself.</br></br>ber of other banks or thrifts and none at all for the total system. Almost any small bank or thrift could go under leaving only a few local ripples, and numerous ones have failed or been merged out of existence this year.