Signs of Strain in U.S. Banking System
Financial Distress at Franklin National, Herstatt
The stability of the U.S. banking system has been taken for granted for decades, since the banks recovered from the collapse of the 1930s. But concern about the system has been building up behind the scenes, and now the assumption of stability is being questioned openly. Among bankers and their critics, concern has centered on three broad areas: aggressive expansion of the banking system, which has resulted in questionable practices; monetary and credit restraint imposed by the Federal Reserve Board in its fight on inflation, which can expose flaws in bank practices that might otherwise be obscured by easy bank credit; and international monetary and financial instability, aggravated by the oil crisis.
Potential weaknesses, ...