Federal Reserve Board Chairman Paul A. Volcker yesterday predicted that a major international banking agreement among the leading industrial countries would be signed by the end of the year.

"I think it will be done," said Volcker in his farewell appearance before the House Banking Committee. "I'm sorry I won't be here to see it."

Such an agreement "would be a big step forward" toward reducing competitive pressure between banking systems, Volcker said. Foreign banks now often have lower capital requirements than U.S. banks, enabling them to offer better rates to borrowers.

Appearing relaxed and jovial, Volcker listened to a slew of tributes from the unusually large number of members of the subcommittee on financial institutions supervision, regulation and insurance who showed up for what was billed as a hearing on globalization of financial markets.

D.C. Del. Walter Fauntroy declared, "When the history of the fourth quarter of the 20th century is written, your name will be {remembered as} one who made the most important contribution to the economic recovery of this nation and the economic stability of the world." And committee chairman Fernand St Germain (D-R.I.) closed the session with an emotional "thank you" to Volcker.

The international banking proposal, first announced by the Fed in January, would create international financial standards for capital requirements. The riskier the bank's assets, the greater the reserves that would be required.

Off-balance-sheet items, such as standby letters of credit, also would require reserves. This "risk-based capital agreement" was originally intended as a bilateral accord with Britain, but Volcker said yesterday that it has not yet been implemented because Japan and the European Economic Community are expected to join.

He said the major sticking point is how to define capital -- in other words, to what degree funds set aside for loan losses should be considered the equivalent of equity. The issue has been pushed "front and center" as the result of large reserves that leading U.S. banks have set aside recently against expected losses on Latin American debts, Volcker said.

During a recess, the often inaccessible Fed chairman held an impromptu press conference, answering questions ranging from economic policy to his future plans. On the latter, he quipped, "I've got to go somewhere and make more money. I can't live off the commission," a reference to the Commission on Public Service, which he will chair without pay. "I've got nothing against business."

Volcker was asked by a subcommittee member if he would welcome an end to the ordeal of testifying on Capitol Hill. He responded by admitting that he usually enjoyed answering questions from Congress, "and that is especially true today."

Many of the questions yesterday centered on cigars. For most of the eight years in which he has served as head of the central bank, Volcker has delivered his economic pronouncements ringed in a cloud of smoke. Recently he gave up smoking.

Rep. David Drier (R-Calif.) wanted to know if it was the prospect of going into the private sector that made him give it up.

"It was the other way around," responded the Fed chief. "I gave up the cigars and then found myself incapable of doing the job any more.