downsized, smaller, less palpable evidence of weight and bulk, requiring more technologically sophisticated labor input. examples of this trend permeate our daily lives. radios used to be activated by large vacuum tubes ; today we have elegantly designed pocked - sized transistors to perform the same function - - but with the higher quality of sound and greater reliability that consumers now expect. thin fiber optic cable has replaced huge tonnages of copper wire. owing to advances in metallurgy, engineering, and architectural design, we now can construct buildings that enclose as much or more space with fewer materials. a number of commentators, particularly professor paul david of stanford university, have suggested that, despite the benefits we have seen this decade, it may be that the truly significant increases in living standards resulting from the introduction of computers and communications equipment still lie ahead. if true, this would not be unusual. past innovations, such as the introduction of the dynamo or the invention of the gasoline - powered motor, required considerable infrastructure investment before their full potential could be realized. electricity, when it substituted for steam power late last century, was initially applied to production processes suited to steam. gravity was used to move goods vertically in the steam environment, and that could not immediately change with the advent of electric power. it was only when horizontal factories, newly designed for optimal use of electric power, began to dominate our industrial system many years after electricity ’ s initial introduction, that national productivity clearly accelerated. similarly, it was only when modern highways and gasoline service stations became extensive that the lower cost of motor vehicle transportation became evident. technological change and the financial economy it is surely not news to a group of bankers that the same forces that have been reshaping the real economy have also been transforming the financial services industry. once again, perhaps the most profound development has been the rapid growth of computer and telecommunications technology. the advent of such technology has lowered the costs, reduced the risks, and broadened the scope of financial services, making it increasingly possible for borrowers and lenders to transact directly, and for a wide variety of financial products to be tailored for very specific purposes. as a result, competitive pressures in the financial services industry are probably greater than ever before. as is true in the real economy, it is difficult to overestimate the importance of education and ongoing training to the advancement of technology and product innovation in the financial sector. i doubt that i need to tell any of you about

globalization, and deregulation have inexorably eroded the traditional institutional differences among financial firms. examples abound. securities firms have for some time offered checking - like accounts linked to mutual funds, and their affiliates routinely extend significant credit directly to business. on the bank side, the economics of a typical bank loan syndication do not differ essentially from the economics of a best - efforts securities underwriting. indeed, investment banks are themselves becoming increasingly important in the syndicated loan market. with regard to derivatives instruments, the expertise required to manage prudently the writing of over - the - counter derivatives, a business dominated by banks, is similar to that required for using exchange - traded futures and options, instruments used extensively by both commercial and investment banks. the writing of a put option by a bank is economically indistinguishable from the issuance of an insurance policy. the list could go on. it is sufficient to say that a strong case can be made that the evolution of financial technology alone has changed forever our ability to place commercial banking, investment banking, insurance underwriting, and insurance sales into neat separate boxes. nonetheless, not all financial institutions would prosper as, nor desire to be, financial supermarkets. many specialized providers of financial services are successful today and will be so in the future because of their advantages in specific areas. moreover, especially at commercial banks, the demand for traditional services by smaller businesses and by households is likely to continue for some time. and the information revolution, while it has deprived banks of some of the traditional lending business with their best customers, has also benefitted banks by making it less costly for them to assess the credit and other risks of customers they previously would have shunned. thus, it seems most likely that banks of all types will continue to engage in a substantial amount of traditional banking, delivered, of course, by ever improving technology. community banks, in particular, are likely to provide loans and payments services via traditional on - balance sheet banking. indeed, smaller banks have repeatedly demonstrated their ability to survive and prosper in the face of major technological and structural change by providing traditional banking services to their customers. the evidence is clear that well - managed smaller banks can and will exist side by side with larger banks, often maintaining or increasing local market share. technological change has facilitated this process by providing smaller banks with low - cost access to new products and services. in short, the record shows that well - managed smaller banks have nothing to fear from technology