New rules 'would have halted BCCI'

THE BCCI fraud would probably have been stopped much earlier if a new set of banking supervision standards had been in place at the time, Gerald Corrigan, president of the New York Federal Reserve, said yesterday.

Announcing a revised version of an international agreement on bank policing known as the Basle Concordat, he said: 'There is no question in my mind that if these standards had been in place it would have been a hell of a lot harder for BCCI to go as far as it went for as long as it went.'

Speaking weeks ahead of the expected publication of Lord Justice Bingham's report on BCCI, which is expected to criticise the Bank of England and BCCI's auditors, Mr Corrigan accepted that there had been failures of supervision.

He said: 'I clearly would accept that there were traits associated with the BCCI situation . . . in which the radar screens were not as effective in retrospect as we would have liked them to have been.'

But trying to get hold of documentary evidence that proved wrongdoing was not an easy task.

No standards could provide a failsafe protection against fraud, said Mr Corrigan, who is chairman of the Basle Committee on Banking Supervision, which produced the new standards.

He added that human resources in the supervision area were a 'very large question', because a relative handful of underpaid people were being asked to 'perform almost mission impossible'. The Fed was hiring 200 more bank examiners, he said.

The Bank of England and the Luxembourg authorities, two of the principal countries involved in the BCCI saga, are signatories to the new minimum standards.

Countries such as the Cayman Islands, whose lax standards were blamed for part of BCCI's ability to cover up fraud, are to be tackled indirectly under the new plan.

Central banks in the Group of 10 industrial countries, Switzerland and Luxembourg have agreed to refuse access to branches of banks from countries where supervision is inadequate.

The toughest weapon will be to insist that branches are financially restructured or closed down if the parent bank's supervisory authority is not up to scratch.

Mr Corrigan said this was the newest of the four standards, the rest of which were a reformulation of existing practice.

But he believed this reformulation would be valuable because supervisors in countries with inadequate standards could use the committee's work to persuade their governments to grant tougher powers.