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Last Updated: 11/20/09

Welcoming Remarks, Bank Structure Conference

Remarks by Michael H. Moskow
President and Chief Executive Officer Federal Reserve Bank of Chicago


Federal Reserve Bank of Chicago

The Westin Hotel
909 North Michigan Avenue
Chicago, Illinois 60611

Welcoming Remarks

It's my pleasure to welcome you to our Annual Conference on Bank Structure and Competition. It's the best-attended and longest-running annual conference in the Federal Reserve System.

This will be my last Bank Structure Conference as President of the Federal Reserve Bank of Chicago. I take great pride in having been a small part in the robust history of the conference and I wanted my final one to be one of the best of what has been a very impressive run of policy conferences. I think you will agree that we have accomplished that goal. The program features the heads of three federal regulatory agencies, the head of the Bank of Canada, and a former Banking Committee Chairman. I'm certain that you'll find their presentations noteworthy, thought provoking, and entertaining.

Our conference focus this year is "The Mixing of Banking and Commerce." This issue has been in the news a bit recently, after applications from Home Depot and Wal-Mart to form Industrial Loan Corporations (ILC) led to an uproar from community bankers. This prompted the FDIC to initially announce a moratorium on ILC applications, and then extend the moratorium for non-financial firms filing ILC applications and requesting deposit insurance.

On one side of the debate, there are those who point out the potential benefits of allowing banks to be affiliated with commercial firms. They emphasize the potential efficiencies in the joint financial-commercial firm production process. They argue that the combination would allow for diversification benefits, similar to those Congress was searching for when they allowed the mixing of commercial and investment banking. And they note the potential savings for consumers in terms of "one-stop-shopping" and efficiency gains for banks as they obtain the information needed to intermediate and manage risk. Finally, certain commercial firms have established distribution networks, and it is argued that having financial services distributed from them could greatly expand access to financial services.

On the other side, there are those who are concerned about the potential risks of mixing banking and commerce. They argue that the combination could lead to adverse changes in market power as large firms come to dominate across industries. There are also concerns about distortions to the credit allocation process as banks may assist their commercial affiliates by providing the affiliates with loans at below–market rates and by denying loans to creditworthy competitors. Not only could the capital allocation process become distorted, but the fear is that this support of the commercial affiliate could adversely affect the financial health of the bank and lead to an expansion of the deposit insurance safety net (and its associated market distortions) outside of the banking sector.

To discuss these issues, we have gathered some of the most qualified and respected members of the financial community, each with a different perspective. The conference program delivers a broad range of perspectives from executives at large and small banks, securities firm managers, regulatory authorities, industry analysts, and research economists.

As usual, our conference will also cover more than the special conference theme. This afternoon we have a panel discussion on payday lending. Tomorrow we will have a panel discussion on the current state of Basel II capital regulation. And we will also be discussing the economics of the evolving real estate markets, and issues associated with mortgage markets. The panelists are an impressive group of experts with a wide range of opinions and unique perspectives, and these discussions promise to be both lively and informative.

Finally, the conference features four special keynote addresses. During lunch today, Sheila C. Bair, Chairman of the Federal Deposit Insurance Corporation, will address issues associated with the conference theme and the current situation surrounding the moratorium on new ILC applications for deposit insurance.

At breakfast tomorrow, James A. Leach, Former Chairman of the House Committee on Banking and Financial Services, will open the day with a keynote address.

At lunch tomorrow, Christopher Cox, Chairman of the U.S. Securities Exchange Commission, will bring a new perspective to the conference in that it is the first time we have been fortunate to have the chairman of the SEC address the conference.

And last but not least, there is this morning's keynote speaker: Fed Chairman Ben Bernanke.

While we know Ben as a prominent economist, the people of his hometown, Dillon, South Carolina, best remember him as the kid who won the 1965 state spelling bee and who might have been the national champion if he had seen the Sound of Music and learned how to spell edelweiss.

His career as an economist began when he moved to Massachusetts, where he earned his BA in economics from Harvard and his PhD from MIT, and where he adopted the Red Sox as his favorite baseball team.

After graduation, he moved between the coasts with prestigious teaching appointments at MIT, Stanford, and NYU, eventually settling at Princeton and becoming chair of the Econ Department. Ben solidified the department's reputation as one of the nation's best. And although deciding which Nobel Laureate to hire can be difficult, he claims his toughest decision was deciding whether to serve bagels or doughnuts at the faculty coffee hour.

Ben later took a leave of absence from Princeton in 2002 to fill a seat on the Federal Reserve Board of Governors, and he then he served as head of the Council of Economic Advisors in 2005 before returning to the Fed as Chairman, last year.

Since moving to Washington, he has reportedly become a fan of the Washington Nationals. Given their record, I hope this is less a sign of his ability to evaluate baseball teams than a sign of his intention to put down roots in Washington and stay with the Fed for a long time.

Though he's been Chairman for over a year, I'm still surprised to read economists in the Wall Street Journal who refer to him as the "new guy." And everyone still asks me: "How's the new guy?"

I'm happy to say the new guy is just fine. I've enjoyed my time with him on the FOMC, admire his strong leadership of the Fed, continuing in the Volcker & Greenspan tradition, and always look forward to hearing his views on a wide range of topics.

This year is Ben's third appearance at our conference. He addressed us as chairman of Fed last year, and he joined us as an academic fifteen years ago, when he presented a timely paper called "The Bank Credit Crunch," in which he argued that the credit crunch of that period did not necessarily make monetary policy impotent. Today he still has his sense of timing and will discuss subprime mortgages.

It's my pleasure to welcome back to the conference my friend and colleague, Ben Bernanke.

*The views presented here are my own, and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.

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