Other institutions are beginning to recognize that non-traditional lending programs, when done right, may have hidden costs in the form of higher overhead and increased management attention. Clearly, then, these are not trouble-free times. Banking is a business of identifying, measuring and managing risk, and significant risks remain, even as we enjoy remarkably favorable circumstances. New opportunities Of course, these also are times of enormous opportunity for banks. The rapid pace of technological advancement and recent legislative changes are opening new frontiers for banks and other financial institutions. For example, the convenience of the Internet is changing how consumers shop for financial products and services and with which providers they establish relationships. In response, some institutions are seeking alliances or mergers to broaden the range of products and services they offer, such as the proposed acquisition of US Trust, a bank offering advisory services to high net worth individuals, by Charles Schwab & Co., one of the largest discount brokerage firms. Once viewed mainly as a cost center, technology now is increasingly seen by banks as a means to enhance the value of customer relationships through cross-selling and improved customization. As a result, developing an Internet platform and other technological capacities is a major priority for many financial service providers. Indeed, a recent survey reported that US bank managers for the first time cited investments in Internet technology as their top budget priority, ahead of other traditionally key budget items such as investments in call centers and brick-and-mortar branch networks.

However, the Act envisions oversight of the bank by the appropriate banking agency and functional supervision of individual non-bank subsidiaries that is, SEC oversight of broker/dealers and oversight of insurance companies by state insurance departments. While the Act permits the Federal Reserve, under specifically defined circumstances, to seek information directly from or even examine non-bank subsidiaries of FHCs, the Act also stipulates that the Fed must rely “to the fullest extent possible” on publicly available information, externally audited financial statements, and reports and other information submitted to the functional supervisors. We at the Federal Reserve take this aspect of our revised role - sometimes referred to as “Fed-lite” very seriously. Clearly, it was not the intention of Congress to replace outdated and overly restrictive aspects of Federal banking law with a needlessly onerous and redundant regulatory regime. Moreover, functionally regulated firms should be able to compete on an equitable basis, whether or not they happen to be affiliated with a bank. To minimize regulatory burden and avoid duplication, the twotiered framework of umbrella supervision of financial holding companies and functional regulation of their subsidiaries requires enhanced cooperation and coordination among Federal and state supervisory authorities. Efforts are well underway among the relevant Federal and state financial services authorities to establish agreements and procedures to effectively implement Congress’ mandate. Before moving on, I want to address the topic of community reinvestment in the context of GrammLeach-Bliley.