US Won't Match Japan's '90s Slump: Fed's Lockhart

The United States will not experience a protracted period of economic weakness like Japan did in the 1990s, but the U.S. financial system is hurt by a lack of clear information about banks, Atlanta Federal Reserve Bank President Dennis Lockhart said Wednesday.

One similarity between the current U.S. financial system and Japan's situation in the 1990s "gives pause," Lockhart said -- the opaque nature of areas of the U.S. banking system.

"Much has been written recently about the so-called 'shadow banking system' of hedge funds and complex securities in the United States that also renders much of our financial system opaque," Lockhart told the Japan-America Society of Georgia in Atlanta.

"Improved transparency must accompany other reforms as an early priority," he added.

As the United States recovers from the bursting of the housing bubble and a credit crunch, it must address "broad systemic inadequacies" and make necessary changes, Lockhart said.

Policy-makers and lawmakers agree oversight of the U.S. financial system needs overhaul to avoid repeating the mistakes that led to the overheating of the housing market and the surge of home loan delinquencies, which slowed the economy and convulsed financial markets.

Defaults among complex securities that contained poorly underwritten mortgages played a central role in the financial turmoil.

However, with a presidential election in November, any reforms are unlikely get serious consideration until next year.

Lockhart said the United States, like Japan in 1989, is experiencing sharp price declines after the bursting of an asset bubble, but he anticipates a quicker U.S. recovery.

"I do not expect this country to experience the same protracted weakness as Japan," he said.

Prices of U.S. single-family homes tumbled a record 14.1 percent in the first quarter from a year earlier, according to a national home price index released last week, one of many signs of the dramatic collapse of the U.S. housing market.

The Japanese banking system generally and its international activities are now in a growth phase, Lockhart said.

"The Japanese banking system has cleaned up its problems, is well capitalized, and is poised to expand again," he said in response to questions.