WASHINGTON -- Laws and regulations that stifle innovation and risk taking could hasten the decline of the banking industry, Federal Reserve Chairman Alan Greenspan said Wednesday.
"The importance of a coherent and well-executed system of banking law and regulation for the health of our banking system, and the broader economy, simply cannot be overemphasized," Mr. Greenspan said in a speech at a Federal Reserve conference in Dallas.
Reiterating recent comments, Mr. Greenspan offered a bleak assessment of the industry's future.
"While the short- to intermediate-term prospects for the industry should not give us cause for concern, I am less sanguine about the long run," he said.
"We cannot afford to be complacent regarding the future of the U.S. banking industry," he added. "The issues are too important for the future growth of our economy and the welfare of our citizens.
Aiming for Flexibility
Mr. Greenspan explained the Fed's approach to implementing new banking laws. More and more, the agency is focusing on more flexible guidance and examiner supervision rather than "rigid formulas and heavy reporting requirements," he said.
"There is a danger that legislated tools will be formulistic and will result in an overemphasis on regulation, which is the writing of rules that apply to all institutions, rather than supervision, which strives to take into account the differences across institutions," Mr. Greenspan said.