West German banking regulations must beexpanded to cover off-balance sheet risks arising from new
financing forms, Federal Banking Supervisory Office President
Wolfgang Kuntze said.
    Kuntze told bankers at a reception that deals for hedging
price risks are not covered by current supervisory rules.
    Such deals could be used for speculation and do not have to
be disclosed.
    Kuntze also said it must be considered whether banks can
continue not to set shareholders' equity and reserves against
their own holdings of securities.
    Since early 1984, banks have been limited to lending 18
times shareholders' equity and reserves on a consolidated basis
and Bundesbank officials have said that interest rate and
currency swaps and currency options are under scrutiny.
    Authorities favour reinterpreting the banking law to fit
present circumstances in order to avoid the long parliamentary
political process of changing it, banking sources said.
    Kuntze said solutions to the problem of banking supervision
can be found without having to change the law again.
    The risk structure in banking is moving away from the model
on which banking supervisory rules are based, Kuntze said.
    Banking supervisors are still firemen with a safety net but
the safety net has become a little too small, he said.
    Kuntze declined to detail possible changes to banking
regulations, as these are still the subject of discussions
between the Supervisory Office and the Bundesbank.
    He said he sees no chance in the foreseeable future for an
international harmonisation of supervisory law and the German
supervisory office would not wait for such harmonisation.
    Nor would it get involved in international competition on
minimal regulatory standards in order to shield banks from
competitive disadvantages, he said.
 REUTER
