- faster evaluation of creditworthiness, identification of prospective borrowers, and management of existing accounts. all these developments had their positive aspects, including for people in low - and moderateincome communities. prior to the introduction of the cra, as you know, many of these communities had limited access to mortgages and other forms of consumer credit. subsequent innovations in financial products and services, processes, and technology helped at least some underserved consumers more fully enter the financial mainstream, save money, invest, and build wealth, and homeownership rates rose significantly. yet with hindsight, we can see that something went wrong in recent years, as evidenced by the currently high rates of mortgage delinquency and foreclosure, especially in minority and lower - income neighborhoods. indeed, we have come almost full circle, with credit availability increasingly restricted for low - and moderate - income borrowers. and the damage from this turn in the credit cycle – in terms of lost wealth, lost homes, and blemished credit histories – is likely to be long - lasting. one would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be. a number of factors explain the recent credit boom and bust, including problems stemming from financial innovation. from a consumer protection point of view, a particular concern has been the sharp increase in the complexity of the financial products offered to consumers, complexity which has been a side effect of innovation but which also has in many cases been associated with reduced transparency and clarity in the products being offered. i will illustrate the issue in the context of some familiar forms of consumer credit : credit cards, mortgages, and overdraft protection. credit cards, mortgages, and overdrafts : some instructive examples the credit card is an example of financial innovation driven by technological advance, including improvements in communications, data management, and credit scoring. when the first general - purpose credit card was issued in 1952, it represented a way to make small loans more quickly and at a lower cost than the closed - end installment loans offered by retailers and finance companies at the time. moreover, this form of credit doubled as a board of governors of the federal reserve system ( 2007 ), report to the congress on credit scoring and its effects on the availability and affordability of credit, ( washington : board of governors, august ). means of payment. card issuers benefited by spreading fixed costs over multiple advances of credit

the changes occurring in the financial sector. the effects of consolidation and conglomeration on systemic risk cannot be ignored. if risk is not managed properly within the consolidated firm, the repercussions could extend beyond a single institution and well into the financial sector. even if the moral hazard problem could be largely solved, so that financial firms bear the individual costs of the risks they adopt, these firms may fail to internalize the costs borne by the entire financial system when their portfolio decisions result in bad financial outcomes. the risk of such damage can be held in check only by sound supervisory practices. i do not have time to do more than quickly mention some of the important efforts that the federal reserve is pursuing in order to improve bank supervision. much of our effort, along with that of other bank supervisors, is focused on improving our ability to monitor and supervise the risk management practices of banks and banking organizations. closely related work is aimed at devising capital standards that more accurately reflect the realities of today ’ s banking world. through it all, i would emphasize that old - fashioned supervision, the core of which is the on - site examination, remains central to our supervisory strategy. improved market discipline, increased communication with other supervisors, and enhanced stability through greater diversification are necessary. but improved supervision is also critical, and sometimes there is simply no substitute for a well - trained and highly motivated examiner “ on the ground. ” v. conclusion in closing, i would like to reemphasize the importance of the basic skills that remain centrally important in the financial services sector. regardless of the extent and the nature of conglomeration, technological development, and new financial instruments, good fundamental business practices will remain essential : credit underwriting and risk management skills, cost control, and appropriate pricing practices. while technological improvements are an aid in nearly all these areas, only sound management practices will allow industry participants to take advantage of any advances in technology. at the same time, fundamental principles of supervision and regulation must be applied, including sound credit standards and on - site examinations, to ensure the safety and soundness of the financial sector. finally, regulators should implement antitrust policy in a manner that will ensure competitive prices and services as the financial sector evolves and consolidates. despite the importance of vigorous supervision and regulation, i and my colleagues on the board are quite sensitive to the fact that it is not our role to judge the wisdom of management decisions and business strategies beyond ensuring that public policy standards regarding supervision and regulation