Washington Even though the country has just half the banks that it did two decades ago, the competition to provide consumers with financial services remains intense, Federal Reserve Chairman Alan Greenspan said Friday.
Speaking to a Federal Reserve sponsored conference, Greenspan said that deregulation of the U.S. banking industry has contributed to an approximately 50 percent decline in the number of banks and savings and loan institutions since the mid-1980s.
At the same time, he said, the 10 largest U.S. banks and thrift institutions have increased their share of domestic assets such as consumer loans from 29 percent of the total to 49 percent.
But Greenspan said most studies showed that this ongoing consolidation had not reduced overall competition to provide consumers with banking services.
"Even in the face of consolidation, competition is fought on the battlefield of the local market, where most households obtain the majority of their banking services," Greenspan said. "It is noteworthy that our measures of local market competition have remained quite stable over the past 15 years."
Greenspan said that competition was being bolstered by the fact that deregulation has spurred many nonbank enterprises to provide loans and other services that were once mainly offered by traditional banks.
Technology also has helped to boost competition, the Fed chief said, with more sophisticated computer programs allowing banks to offer loans to applicants who were once turned down for mortgages and other loans.
"Where once more-marginal applicants would simply have been denied credit, lenders now are able to quite effectively judge the risk posed by individual applicants and to price that risk effectively," Greenspan said.
Because of this, he said that sub-prime mortgage lending, which accounted for just 1 or 2 percent of total home mortgages in the early 1990s, now accounts for roughly 10 percent of the number of mortgages outstanding.
"Unquestionably, innovation and deregulation have vastly expanded credit availability to virtually all income classes," Greenspan said.