Alan Greenspan, chairman of the Federal Reserve, conceded yesterday that US bank inspectors may have missed danger signals at the New York branch of Daiwa Bank before it became engulfed in a $1.1bn bond-trading scandal.
"With the benefit of hindsight, there were some clues that we missed in the examination of Daiwa," Mr Greenspan told a special US Senate hearing in Washington on the Daiwa affair. "With more robust follow-up, the problem might have been found sooner."
Daiwa has been given until 2 February to close all its operations in the US as punishment for the scandal, which centred on losses of $1.1bn accumulated over 12 years by one of its senior traders, Toshihide Iguchi. There was particular anger that while Daiwa learned of its problem in July, it waited until September before informing the US authorities.
Mr Greenspan made direct reference to the two-month delay yesterday and defended his decision to eject the bank from US territory. "The potential cost to our financial system and hence to our economy is too large," he said.
Daiwa itself faced further woes yesterday as it emerged that three of its shareholders were suing 38 bank officials, including its former president, for mismanagement. Also citing the delay before the trading loss was made public, the plaintiffs are asking for damages of 100bn.
US examiners first encountered trouble at Daiwa in 1992, when they zeroed in on Mr Iguchi specifically and requested that he no longer be given dual responsibility for overseeing bond trading and accounting for the trades.
But the investigators apparently never asked whether the unusual position held by Mr Iguchi might have been engineered to cover up the misuse of funds.