SAN ANTONIO - Federal Reserve Board Chairman Alan Greenspan on Wednesday warned bankers against rushing to take advantage of new powers, stressing that the industry's traditional offerings have produced eight consecutive years of record earnings.

"The decision to change that formula by expanding into new activities should not be taken lightly," he said. "Some of the new technologies are beguiling, but we should not lose sight of the exceptional economic value of franchises based on old-fashioned, face-to-face interpersonal banking."

In a speech here at the 70th annual Independent Community Bankers of America convention, Mr. Greenspan said he is glad the Gramm-Leach-Bliley Act of 1999 has not triggered merger frenzy among banks, brokers, and insurers.

"Personally, I am encouraged that there has not been a tidal wave of public announcements - from large banks or small - declaring rapid and large-scale affiliations," he said.

"I would like to believe that the disappointing post-acquisition results of some firms have taught them to think more strategically today, and to carefully weigh the pros and cons of such affiliations - including whether and how the economics make sense."

Bankers, who gave Mr. Greenspan a standing ovation before he spoke, welcomed his cautionary message.

"I think it made bankers rethink their strategies. We have to take it one step at a time," said Randy P. Helton, president and chief executive officer at $81 million-asset American Community Bank in Monroe, N.C.

The financial reform law requires companies seeking to offer the widest spectrum of products and services to form financial holding companies, which will be supervised by the Fed. The agency is expected to approve the first applications for financial holding company status on Friday. The first business day on which companies can operate as financial holding companies is Monday, March 13.

Charles Schwab Corp. has filed the most prominent financial holding company application as part of its bid to acquire U.S. Trust Corp. in New York. But Mr. Greenspan said two-thirds of the applications have been filed by companies with less than $1 billion of assets.

As banks diversify, Mr. Greenspan said, supervision tactics must evolve beyond the current bifurcated approach, which devotes more oversight to more complicated operations. "Our two broad supervisory programs will likely need further customization or segmentation to respond to the evolving diversity of our supervisory caseload," he told the gathering of 1,200 bankers.

To help regulators know which banks need the most attention, the quarterly call report will be updated, Mr. Greenspan said. "Regulatory reporting will play an important role in ensuring that we retain the ability to customize our supervisory approach."

Items that are no longer useful will be eliminated, but call reports will also require new information, said Mr. Greenspan, who mentioned securitizations and venture capital as two likely additions.

Regulators are also considering a separate, streamlined capital standard for smaller, less-complex banks, Mr. Greenspan said. He called the effort "very preliminary" but said most banks should not be forced to comply with the complicated risk-based capital standard currently being rewritten by international regulators.

"Fully extending such a paradigm to community banks may be impractical and unnecessary," he said.

As mandated by the Gramm-Leach-Bliley Act, Mr. Greenspan said, regulators have already started delaying Community Reinvestment Act exams for banks that qualify. The new law extends CRA exams to five years for small banks with outstanding ratings, and four years for those with satisfactory ratings.

Mr. Greenspan said the change creates a logistical problem: when to verify compliance with other laws such as the Truth in Lending Act. The change, he said, "may engender new approaches to the nature and frequency of compliance examinations, and we have been talking with the other agencies about how they are dealing with this issue."

Finally, Mr. Greenspan reminded bankers that the long-lived economic expansion will not last forever. "Most bad loans are made in the good times," he said. "Lenders that are not attentive to this vulnerability are unlikely to survive in this business."

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