Technological advances, industry consolidation, and interstate branching will not destroy community banks, Federal Reserve Board Chairman Alan Greenspan said Tuesday.

"Many pundits have concluded that these forces will destroy small banks by making them quaint symbols of the past," Mr. Greenspan said at the Independent Bankers Association of America annual convention here. "These prognosticators are plain wrong."

Community banks will survive because they provide specialized and flexible financial products and services to small businesses and households, Mr. Greenspan argued.

While technology has increased the number and variety of bank competitors, Mr. Greenspan said, it will never replace the need for the face-to-face financial services offered by community banks.

"Meeting customer demands on the customers' terms remains the name of the game and the customer continues to demonstrate his desire to deal with an institution that is conveniently located," he said.

However, the Fed chairman warned community banks against snubbing advances in technology.

"Ignoring the fundamental changes going on in financial delivery systems - and not adapting to them - could well contribute to the demise of a bank so inclined," he said. "Such unresponsive banks ... are not, by definition, showing the creativity that has characterized community banking."

Mr. Greenspan downplayed the effect that industry consolidation will have on the survival of small institutions. While it is generally agreed that the number of banks will shrink, thousands will remain, he said, "reflecting both their individual efficiencies and competitive skills, on the one hand, and the preferences of the marketplace on the other." Community banks' personalized knowledge of local markets and customers ensure that their franchise value will remain high, he said.

Mr. Greenspan also sought to dispel the fear that out-of-state banks will run small local banks out of business by offering lower fees to build market share.

"On average, the highest fees in local markets are levied by out-of- state banking organizations who, in turn, are not charging significantly lower fees than they charge in their home states," Mr. Greenspan said.

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