Chairman Donald E. Powell
Federal Deposit Insurance Corporation
South America and Emerging Risks in Banking
Florida Bankers Association
Orlando, Florida
October 23, 2002
FOR IMMEDIATE RELEASE Media Contact:
PR-112-2002 (10-24-02) Rosemary George (202) 898-6530
Good evening. I am glad to be in Orlando with you all.
I've been giving a number of speeches this fall to different groups around the country. I
have enjoyed talking to bankers about the future of the financial services industry and
how we can better understand where we're going and what to expect - as bankers, as
regulators, and as consumers.
This is very important. In the last 20 years, we've seen our economy, and the banking
business, undergo profound changes - changes that have altered the economic playing
field for every one of you. We've seen the number of insured institutions drop by one-
third in the last 20 years. During the same time frame, there were about 1,500 failures
and about 9,100 mergers.
The trends in the broader economy related to deregulation, technology, consolidation,
and a focus on the consumer were mirrored in the financial services arena as well.
Interest rates were deregulated. Geographic, structural, and activity restrictions were
loosened. And technology played an ever-increasing role in serving customers, handling
institutional complexities and managing risk. All of these changes served to transform
the industry by empowering banks as well as their non-bank competitors.
These changes also led to an unprecedented consolidation in the industry - and the
concentration of assets in a few very large and very complex banking firms. In 1982, the
10 largest banks controlled 25 percent of the industry's assets. This year, the 10 largest
banks control about half the industry's assets. Here's another way of looking at it: the
combined assets of all community banks with less than $1 billion in assets put together
are exceeded by the combined assets of the three largest banks in the land.
This is a pretty significant shift. Another shift is in the transfer of what had been typical
banking products to the non-bank financial services sector. This increased competition
resulted in many more Americans placing their money in money-market accounts and
Federal Deposit Insurance Corporation
South America and Emerging Risks in Banking
Florida Bankers Association
Orlando, Florida
October 23, 2002
FOR IMMEDIATE RELEASE Media Contact:
PR-112-2002 (10-24-02) Rosemary George (202) 898-6530
Good evening. I am glad to be in Orlando with you all.
I've been giving a number of speeches this fall to different groups around the country. I
have enjoyed talking to bankers about the future of the financial services industry and
how we can better understand where we're going and what to expect - as bankers, as
regulators, and as consumers.
This is very important. In the last 20 years, we've seen our economy, and the banking
business, undergo profound changes - changes that have altered the economic playing
field for every one of you. We've seen the number of insured institutions drop by one-
third in the last 20 years. During the same time frame, there were about 1,500 failures
and about 9,100 mergers.
The trends in the broader economy related to deregulation, technology, consolidation,
and a focus on the consumer were mirrored in the financial services arena as well.
Interest rates were deregulated. Geographic, structural, and activity restrictions were
loosened. And technology played an ever-increasing role in serving customers, handling
institutional complexities and managing risk. All of these changes served to transform
the industry by empowering banks as well as their non-bank competitors.
These changes also led to an unprecedented consolidation in the industry - and the
concentration of assets in a few very large and very complex banking firms. In 1982, the
10 largest banks controlled 25 percent of the industry's assets. This year, the 10 largest
banks control about half the industry's assets. Here's another way of looking at it: the
combined assets of all community banks with less than $1 billion in assets put together
are exceeded by the combined assets of the three largest banks in the land.
This is a pretty significant shift. Another shift is in the transfer of what had been typical
banking products to the non-bank financial services sector. This increased competition
resulted in many more Americans placing their money in money-market accounts and
mutual fund shares than was the case 20 years ago. In fact, in 1982, more than 90
percent of Americans' money was in banks. By last year, that figure had fallen to about
45 percent of the overall total.
We've also seen a similar migration on the credit side. In 1980, just less than half of all
credit-market liabilities were held by insured institutions. By last year, this figure had
declined to about 25 percent. During the same period, mutual funds, asset pools,
closed-end funds and money-market funds have seen their share of the credit pie
increase from less than 10 percent to about 35 percent.
All this sometimes leads to the argument that banks are losing their piece of the pie.
And it does sometimes keep me up at night. But it is important to remember - and many
of you here already know this - that banks were not entirely left behind by this shift. The
Call Report data continue to show that almost 2,000 banks report income from
investment banking activities - including sales and servicing of mutual funds, merger
and acquisition services, underwriting, and investment advisory services. It further
appears that a significant portion of this shift has occurred out of the insured institution
but nonetheless to an affiliate within the holding company shell.
Community banks remain healthy, too. New charters are up. Two years into an
economic slowdown, we continue to see good overall CAMELS ratings, capital ratios,
lower-than-expected drains on revenue from loan-loss provisioning, and increased
diversification of the income stream.
This is all positive news. And given this data, it is fair to say that, while your share of the
pie has never been richer, it has never been smaller either.
What should you do to deal with this trend? In talking to bankers around the country, I
have stressed three points: stick to good fundamentals, be nimble and responsive to the
marketplace, and keep an open mind. I cannot tell you what the marketplace of the
future will look like. But I can tell you that it will be populated with institutions that wisely
manage and maintain their capital, that are in tune with the evolution of the markets and
consumers, and that create a culture - within their institutions - of action. Getting things
done with skill and without delay - while upholding the highest standards of the
business.
This is a high calling and will require quite a bit of effort on your part. But we regulators
have a role to play, too. We must ensure that we are competent, we are efficient, we are
responsive and we are organized to address and deal with the challenges the
marketplace will throw at us. This underscores a fundamental philosophy of mine. The
marketplace should decide how the business of providing financial services evolves.
The regulators should work to make sure this evolution takes place in a way that
protects the public's interest in a safe and stable financial system. All wisdom doesn't
percent of Americans' money was in banks. By last year, that figure had fallen to about
45 percent of the overall total.
We've also seen a similar migration on the credit side. In 1980, just less than half of all
credit-market liabilities were held by insured institutions. By last year, this figure had
declined to about 25 percent. During the same period, mutual funds, asset pools,
closed-end funds and money-market funds have seen their share of the credit pie
increase from less than 10 percent to about 35 percent.
All this sometimes leads to the argument that banks are losing their piece of the pie.
And it does sometimes keep me up at night. But it is important to remember - and many
of you here already know this - that banks were not entirely left behind by this shift. The
Call Report data continue to show that almost 2,000 banks report income from
investment banking activities - including sales and servicing of mutual funds, merger
and acquisition services, underwriting, and investment advisory services. It further
appears that a significant portion of this shift has occurred out of the insured institution
but nonetheless to an affiliate within the holding company shell.
Community banks remain healthy, too. New charters are up. Two years into an
economic slowdown, we continue to see good overall CAMELS ratings, capital ratios,
lower-than-expected drains on revenue from loan-loss provisioning, and increased
diversification of the income stream.
This is all positive news. And given this data, it is fair to say that, while your share of the
pie has never been richer, it has never been smaller either.
What should you do to deal with this trend? In talking to bankers around the country, I
have stressed three points: stick to good fundamentals, be nimble and responsive to the
marketplace, and keep an open mind. I cannot tell you what the marketplace of the
future will look like. But I can tell you that it will be populated with institutions that wisely
manage and maintain their capital, that are in tune with the evolution of the markets and
consumers, and that create a culture - within their institutions - of action. Getting things
done with skill and without delay - while upholding the highest standards of the
business.
This is a high calling and will require quite a bit of effort on your part. But we regulators
have a role to play, too. We must ensure that we are competent, we are efficient, we are
responsive and we are organized to address and deal with the challenges the
marketplace will throw at us. This underscores a fundamental philosophy of mine. The
marketplace should decide how the business of providing financial services evolves.
The regulators should work to make sure this evolution takes place in a way that
protects the public's interest in a safe and stable financial system. All wisdom doesn't