WASHINGTON -- Federal Reserve Governor Susan M. Phillips urged bankers to pay attention to social and cultural trends that will affect banks' ability to succeed.

Demographic changes such as increased racial diversity and the growing financial clout of women will dramatically alter customer bases and product demand, she said in a speech Wednesday at the American Bankers Association's Stonier Graduate School of Banking in Newark, Del.

And no bank can escape the growing perception that private companies should be more involved in curing social problems, she added.

Getting Ahead of the Curve

"Those banks that anticipate and understand the dynamics of social and cultural diversity will be ahead of the curve," Ms. Phillips said.

"Those banks that respond effectively with appropriate research, product development, marketing, and employment practices will be the leading institutions in the future."

She warned that if banks do not address these changes, Congress will step in to tell them how to do business.

To the extent that the industry neglects emerging issues, she said, "I have no doubt there will be a legislative response."

Some of the industry's more onerous burdens, like the Truth-In-Savings Act, could have been averted if bankers had been more sensitive to social trends, she said.

Social Responsibilities

Ms. Phillips also pointed to the focus on fair-lending issues as an example of broader social responsibilities being assigned to the financial sector.

"Today's climate of sensitivity and fair treatment will assure that concern over the [Home Mortgage Disclosure Act] data disparities will remain a major problem for the industry until measurable improvement can be demonstrated," she said.

"On a daily basis, the modus operandi of public officials in the Nineties and beyond will be the public-private partnership," she said.

"Financial institutions continue to be natural targets for those seeking private financing for community projects.

"In short, the spotlight is and will remain on financial institutions as key players in meeting both social and economic challenges."

Aging Population

Foremost among the demographic changes requiring a response, the governor said, is the aging population, which will require banks to create new products, redesign facilities, and market differently.

The greater ethnic and racial diversity will require lenders to retool their products and work forces, and foster a deeper sensitivity to underserved groups like businesses owned by minorities and women, Ms. Phillips said.

She also noted that "the environmental movement is much broader than the lender liability issue" that has become a legal concern for many commercial lenders.

"An institution that's on the cutting edge of technology, but on the dull edge of social change, may have a hard time achieving success in the future," she said.

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