WASHINGTON - Federal Reserve Board Chairman Alan Greenspan said Wednesday that the so-called credit crunch "may finally be retreating."

He also said the banking system has regained enough strength to support economic expansion.

"Although many problems remain before one can conclude that our banking system has fully weathered the storm of recent years, it certainly appears in sufficiently reasonable shape to assist in the financing of a sustained expansion in economic activity," Mr. Greenspan said in remarks prepared for the Tax Foundation in New York.

Grim Forecasts Discounted

Mr. Greenspan dismissed recent predictions of widespread bank failures. Warning, however, that "the future can be full of surprises," he added: "More banks will fail, perhaps some sizable ones."

The Fed chairman was cautiously optimistic on the prospects for increased lending.

"Fortunately, the credit crunch which has been so debilitating to the economic performance in this country over the past two to three years has shown no evidence of worsening in recent months and may finally be retreating," he said.

His comments reinforce recent statistical and anecdotal evidence that loan demand has started to pick up in several regions.

Mr. Greenspan attributed the crunch in part to weak loan demand but also cited "tightened examination standards" and last year's banking law, both of which he said "micromanage" banks.

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