Credit risk challenges in the next 18 months.

Volatility and uncertainty pose significant credit risks for banks today. A panel of three distinguished bankers discussed what they believe are the credit risk challenges facing banks during the next 18 months at an RMA audioconference in November 1998. Below are the comments of panelist William R. Barrett, vice chairman, risk management committee, J.P. Morgan Co., Inc. For excerpts of the comments of Peter R. Butcher, executive vice president, Union Bank of California and David L. Eyles, vice chairman, Fleet Financial Group, visit RMA's Web site at www.rmahq.org. Click on Journal Bonus.

The two industries that are at the top of my current U.S. worry list are healthcare and telecommunications. While each of these has unique risks, they are both being severely stressed by changes in technology and regulation. These stresses are not susceptible to conventional balance sheet and income statement ratio analysis. Nevertheless, it is critical to a company's future financial soundness that it be able to:

* Manage these changes.

* Use technology.

* Exploit regulatory opportunities.

* Defend itself from regulatory challenges.

Healthcare Industry

Healthcare service providers (excluding drug companies and the medical device companies) and the managers and underwriters of medical risk are being squeezed by regulations that try simultaneously to contain medical costs and to enhance patients' rights to the best possible care. Technology increases this problem by offering improved diagnostic procedures almost always at increased cost.

The regulatory environment has clearly been shaped by politics. We all want the best possible care for us, but we want them to pay for it. And the predictable result is that reimbursement mechanisms …