Fed Chairman Alan Greenspan Speaks to Bankers' GroupAired March 8, 2000 - 9:37 a.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: We want to take you to a live event under way in San Antonio, Texas. You see there Federal Reserve Chairman Alan Greenspan speaking to the Independent Community Bankers' Association of America. He is basically talking to the group about the new economy and its future.
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ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: ... by larger, less responsive banks. Community banks have also responded well to technological challenges. Despite false warnings and recommendations by some that depositors should move their money to larger so-called "sophisticated" banks, your communities continue to give you their trust.
With hardly an exception, community banks made a smooth transition through the century date change, not to mention the leap year. But with the Y2K threat a fading memory, and business conditions strong, what are the next challenges?
Today I would like to provide a brief overview of what I believe are the key challenges, risks and opportunities faced by community bankers and their supervisors.
To start, I would be remiss, as a central banker and bank regulator, If I did not first point out some of the risks that are still lurking. Despite the vibrant economy and exceptional banking conditions, we have seen how instances of lax standards, excesses or fraud can cause disproportionate losses to the insurance funds. While their high costs may be considered exceptional, these recent failures perhaps offer broader lessons. In particular, banks and supervisors need to be continuously vigilant about traditional causes of bank failure, such as fraud, credit concentrations, and rapid entry into new and unfamiliar activities.
History has shown that entry into new business lines without the experience, tools and controls to do the job right, most often leads to losses and sometimes failure. Besides these risks a broader and more troubling trend is that many banking institutions view current strong economic conditions as no longer extraordinary and exceptional, but rather as ordinary and expected.
Lending granted on that basis could have grave consequences for the industry's ability to weather weaker economic conditions. We have seen growing evidence of credit granted solely on the expectation that current, robust conditions will continue indefinitely with little thought as to how borrowers might perform under more stressful conditions.
As experienced lenders know all too well, most bad loans are made in good times. Lenders that are not attentive to this vulnerability are unlikely to survive in this business. Maintaining strong asset quality, of course, is only one of the many challenges that community banks face.
HARRIS: Fed Chairman Alan Greenspan there, addressing a crowd in San Antonio, Texas this morning, a group of bankers, telling them that there are risks that are still lurking, and he is warning bankers to be vigilant against the causes of bank failures, in spite of the booming economy that we happen to be in right now.
He also warned bankers not to take this economic expansion for granted. This is not the norm, and apparently there is evidence that bankers are beginning to set policy as if this is the way it is always going to be. Greenspan warning them to not do so.
We are keeping an eye on Alan Greenspan and on his comments because, as you know, when he speaks the markets react. And the market, as you may know, the Dow dropped some 374 points yesterday. We are checking to see how things happen or how they play out today. So stay with us, we have more coverage of it throughout the day.
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