The bulk of liquidity remains invested in shortterm placements with prime banks
in Europe and the GCC and in highlyrated debt investment securities The banks still sound capital ratios provide a good buffer against adverse eventualities, and a firm basis for the ongoing required investment in retail banking.
Biern, Deputy Associate Director, Division of Banking Supervision and Regulation, before the Committee on Banking, Housing, and Urban Affairs, US Senate, July 17, 1996 I am pleased to appear before the Committee on Banking, Housing, and Urban Affairs to discuss actions that the Federal Reserve has taken over the past several years to address the problem of prime bank" financial instruments and related illegal financial schemes.
The transactions that were brought to our attention involved notes, guarantees, letters of credit, debentures, or other seemingly legitimate types of financial instruments being issued by an unidentified "prime bank" or by a domestic or foreign banking organization that was said to be keeping the issuance of the instruments secret.
The documentation related to a "prime bank" investment was extremely complex and difficult to comprehend.
A secure escrow account maintained at a "prime bank" or by an attorney would be used to hold the investors' funds, and payments into this account would be made by some sort of "key tested telex" message.
Some "prime bank" schemes appeared to be targeted to individuals and companies who needed loans.
On October 21, 1993, the Federal Reserve and the other federal banking agencies issued the first inter-agency advisory entitled Warning Concerning 'Prime Bank' Notes, Guarantees, and Letters of Credit and Similar Financial Instruments." The advisory, which is attached to my prepared statement, informed banking organizations and the public that the Federal Reserve and the other regulators know of no legitimate use of any "prime bank"-related financial instrument.(1) The advisory also asked the public to contact agency representatives if approached to invest in a "prime bank" instrument or pay a advance fee to secure a loan funded by a "prime bank" note, letter of credit, or other type of questionable financial instrument.
The advisory prompted numerous calls and letters about "prime bank" matters.