Bankers generally are not Luddites; they laud technology because they see the way it can boost their profits.

Still, some have yet to log on to the fact that technology is not just evolving within the financial services industry, it is revolutionizing the way financial services will be accessed and delivered in the future.

It is easy to be optimistic about the benefits of technology. A 1996 survey of bank transaction costs points to the clear advantages of automated delivery: A transaction handled by a human teller can cost a bank as much as $2.93, a telephone transaction up to $1.82, an ATM transaction 27 cents, a PC banking transaction 24 cents, and a PC banking transaction on the Internet, 2 cents.

Thus, the more people use home computers to manage their money, the greater the potential for banks' profits to increase.

Improving on the past year's profits will be no mean feat. For 1996, the banking industry reported record profits, after a less-than-stellar decade. Market values of the top 100 banks rose by nearly 50% last year. And both the banking and thrift industries recently have set records for capital.

Yet the past is not prologue to the future. Industry watchers know that trends can and do shift dramatically. In 30 years, people may look back on today's home computers as Model Ts and liken the information highway to the first paved road.

Thanks to the Internet, information is no longer locked in one institution, or even one computer. Anyone with a modem can get access to information that a decade ago was almost proprietary to the intermediaries.

Today you can compare car prices, airline fares, or interest rates at home. Someday, depositors may make investments through a kiosk at a shopping mall, assuming virtual malls don't eventually replace the concrete shopping venues.

At the same time, the financial marketplace has been shifting: Banks once the "safest place" for people to park their money are still safe, but no longer dominant.

Consumers eager for higher returns in today's bull market have been turning to mutual funds. Last December, the net inflow into the total mutual fund business was about $18.5 billion. Mutual fund investment, now at $3.6 trillion, is equal to and may exceed bank and thrift deposits.

In the post revolutionary world, I foresee a day when investors/savers- from your next-door neighbor to national pension funds-electronically put their money into a slew of capital pools, including mutual funds, banks, stocks, and new products marketed by investment bankers.

At the same time, would-be borrowers-from the homeowner seeking a $100,000 mortgage to a corporation seeking $10 million-will want access to these capital pools.

Today, that would-be borrower goes to an intermediary. In a not-very- distant tomorrow, the borrower may log on to a modem and access a computerized link that will match the borrower's needs/assets background to particular capital pools.

We already have taken a partial step toward such a computerized linkage that matches borrowers and lenders. At the Federal Housing Administration (FHA), we recently sold more than 1,100 mortgages to investors, raising net proceeds of $1 billion. Borrowers submitted bids on individuals or sets of mortgages, and a computer program designed to "optimize" return to taxpayers determined who got what mortgage.

In this ever-changing new world banks must continue to adapt, redefining their roles and finding new niches. They must answer the classic transactional question: What is the added value they will provide the customer?

And what of the government's role? It will be regulatory and compensatory.

Within the next 60 days, the administration plans to introduce comprehensive financial modernization legislation that will help the financial services industry retool for the next millennium. The government could not, even if it wanted to, reshape the market or curb the technology revolution. It must get out of the way of technology, recognizing that the revolution will continue and that government regulations must also continue to evolve.

Even in this environment of change, government can continue to promote fairness and protect consumers and communities whose ships do not rise with this tide; but it cannot preserve the status quo, even a profitable one.

Bankers often ask: What will the government do in the area of financial services modernization? The more apt question is: What will banks do to respond to this technology revolution?

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