U.S. Banks No Longer Face Threat in 3rd World Loans

U.S. banks are no longer threatened with failing because of uncollected Third World debts, the nation’s top banking regulators said today.

“Most of the regional banks have put the LDC (Less Developed Countries) situation behind them,” L. William Seidman, chairman of the Federal Deposit Insurance Corp., told the House Banking Committee.

“While large LDC exposure by some major banks will be with us for years to come, at this time we cannot foresee any bank failures resulting from LDC exposure alone,” Seidman said.

Manuel H. Johnson, vice chairman of the Federal Reserve Board, said U.S. bank exposure to the 15 major Third World debtors declined by $8.6 billion between July, 1987, and the same month last year to $76 billion.

“A disproportionate share of this reduction was accounted for by large regional banks, as distinct from the largest multinational banks,” Johnson said. “Nonetheless, the top nine banks reduced their total exposure over the year by $2.6 billion (to $53 billion).”

He said small and regional banks have largely abandoned further international lending in developing countries and have reduced what exposure they had by selling or swapping the loans at discounts on secondary markets.

The larger banks, he said, have not been willing to discount their loans to the Third World countries as much.

Seidman said the nine major U.S. money center banks have reduced their outstanding loans to 31 less-developed countries from $61 billion in December, 1982, to roughly $55 billion as of last year.