Greenspan Admits Missing Daiwa ‘Clues’

Federal Reserve Board Chairman Alan Greenspan, in an unusual mea culpa , acknowledged Monday that U.S. regulators had failed to respond aggressively in 1993 to signs that improprieties were occurring at Daiwa Bank Ltd.’s New York branch.

Greenspan and two other bank regulators testified before a Senate panel that they are tightening up their supervision of foreign banks in the wake of the recent revelations about Daiwa, whose top management in Japan stands accused of trying to cover up $1.1 billion in bond trading losses incurred by one of its New York-based executives. The Fed ordered Daiwa out of the country after the bank disclosed the illegal activity in September.

“With the benefit of hindsight, there were some clues that were missed in the examination of Daiwa,” Greenspan told the Senate Banking Committee.

In his first extended comments about the Daiwa scandal, Greenspan disclosed that the Fed staff had prepared an enforcement action against Daiwa in 1993 when regulators first learned the bank’s New York branch had deceived them on certain matters. But rather than pursue what else Daiwa may have been hiding at the time, the Fed decided to drop the enforcement after Daiwa promised to address the regulators’ concerns. “The bottom line is that we did not succeed in unearthing Daiwa’s transgressions where we might have,” he said.