Fed Urged To Implement Capital Rules
The chairman of the House domestic monetary policy subcommittee yesterday asked the Federal Reserve Bank of New York to put in place as soon as possible its proposed capital adequacy guidelines for unregulated government securities dealers.</br></br>The request by Rep. Walter Fauntroy (D-D.C.) was triggered by the closure of Florida-based ESM Government Securities, whose failure Monday could spell a loss of up to $300 million for its customersÛÓ which included savings and loan associations, pension funds and municipalities.</br></br>The New York Fed said yesterday that based on its ÛÏmarket contacts we havenÛªt found any evidence of losses of unmanageable proportions in the dealer communityÛ as a result of the ESM failure. A spokesman for the New York Fed said he would have no comment on Faun-troyÛªs proposal.</br></br>The capital adequacy guidelines put out for comment last month by the New York Fed are aimed at government securities dealers, like ESM, that are not now subject to some form of federal supervision. The guidelines, which would be voluntary, call on unregulated dealers to maintain a level of liquid capitalÛÓcash and securities that can easily and quickly be converted to cashÛÓthat is at least 20 percent more than any possible losses they might incur.</br></br>The guidelines call on customers of the government securities dealers to require the unregulated firms to certify that they meet standards of capital adequacy.