alan greenspan : technology and banking speech by mr alan greenspan, chairman of the board of governors of the us federal reserve system, at the sixth annual reception for regulators, sponsored by women in housing and finance, washington, dc on 20 november 2000. * * * i am pleased to join you this evening, and would like to thank diane casey, your former president, as well as nancy camm and the current officers for inviting me to participate. women in housing and finance certainly deserves commendation for its twenty very successful years of providing a forum for individuals, particularly women, from across the spectrum of participants in the financial services industry to exchange views on policies and market developments. more important, i want to applaud the energy with which your organization is approaching its next decades of service. clearly, we have witnessed a rapid evolution of financial markets in recent years, and the likelihood of continuing fundamental change is high. your work in studying and interpreting these changes will be no less challenging in the years ahead than in the twenty past. the remarkable innovations and adaptations that have permeated many aspects of our economy, especially in the most recent years of your history, are a part of the ongoing process of creative destruction that moves our economic potential forward as new technologies displace the old. over the past decade, we have witnessed an acceleration of this process of change, not only in the real economy but in finance as well, with innovations that have swept through the banking, mortgage finance, and securities industries. these innovations have brought with them new products and services, and, of necessity, evolution in the approaches required of both managers and regulators. the unbundling of risk that accompanies the deconstruction of financial products into their constituent parts has revolutionized finance, irreversibly transforming the way services are provided, as well as by whom. what is particularly impressive is that, fueled by both computing and telecommunications capabilities, the pace of financial innovation does not appear to be slowing. technological advance has expanded the scope and utility of our financial products and - as i noted - has increased the ability to unbundle risks. it has also promoted the faster and freer flow of information throughout the financial system : we are quickly moving to real - time systems, not only with transactions but also with knowledge. of course, the process of change poses challenges to the institutions competing to adapt to the evolving needs of businesses and consumers. and it challenges those of us here this evening - policymakers,

. we strongly believe that the act's " chiefly compensated " requirement was intended to apply to a bank's aggregate trust and fiduciary activities and not on an account - by - account basis. an approach focused on the bank's aggregate trust and fiduciary activities is consistent with the nature and operations of bank trust departments and would – in conjunction with the act's prohibition on banks publicly soliciting brokerage business apart from their trust and fiduciary activities – effectively prevent banks from running a full - scale brokerage operation out of their trust departments. the account - by - account approach adopted by the interim final rules, on the other hand, is both unworkable and overly burdensome. first, this approach appears premised on the notion that an individual trust or fiduciary account that engages in a significant number of securities transactions during a year is not a traditional trust and fiduciary account. this premise is flawed, however. it is entirely natural for a bank to engage in numerous securities transactions for a trust or fiduciary account. for example, there may be numerous securities transactions for an account when a trust is initially established and the assets provided by the grantor are initially invested or when the investment see h. r. conf. rep. no. 106 - 434 at 164 ( 1999 ). strategy of a fiduciary account is altered to reflect changes in the beneficiary's investment objective. an account - by - account approach also does not accommodate the complex, multi - account relationships that a bank's trust department is frequently called upon to establish to achieve the individualized wealth preservation and transfer goals of its customers. the account - by - account approach also proves too much. to put this in context, a moderately sized trust department may have on the order of 10, 000 separate trust and fiduciary accounts and a large trust department may have more than 100, 000 such accounts. under the account - by - account approach adopted by the interim final rules, changes in the amount of compensation received during a year from a single trust or fiduciary account could cause a bank and its entire trust operation to become an unregistered broker - dealer, thereby opening the bank to the threat of enforcement action by the sec and, after january 1, 2003, suits by private parties for the rescission of securities contracts entered into by the bank. such a result is unreasonable,