WASHINGTON - Federal Reserve Chairman Alan Greenspan said Monday that regulators should not try to protect financial institutions from high-tech competition - even if it means letting some of them go out of business.
"Some institutions inevitably will suffer erosion of their franchise values as competitors, new and old, prove more adept at tapping the potential gains from the new technology," Mr. Greenspan said in a speech delivered via satellite to a Federal Reserve Bank of Atlanta conference on Sea Island, Ga.
Regulators should "resist any temptation" to preserve banks or others that cannot compete technologically, he said, because the effort would be futile, as investors naturally would shift their money to more viable companies.
"In most cases, the losers will fade away without placing any burdens on creditors," Mr. Greenspan said. "But some undoubtedly will fail. This is a tendency that should not be resisted.
"Authorities need to remember that the optimal rate of failure of regulated financial intermediaries is not zero, in part because of the inevitable and necessary process" of new, more efficient technologies replacing old ones.
Policymakers should promote improved public disclosures and streamlined clearing and settlement procedures to facilitate the threshing out that will occur in the markets, Mr. Greenspan said.
He emphasized that rapid technological changes will benefit financial institutions in the long run. The Internet and other advances in information technology and telecommunications already are cutting costs and enhancing risk management, he said.
