since the early 1980s, it has not been unusual to see 400 or more mergers among healthy banks each year. while mergers have occurred, and continue to occur, among banks of all sizes, i would emphasize three aspects of the current bank merger movement. first is the high incidence of “ megamergers ”, or mergers among very large banking organizations. several mergers of the last few years have been either the largest at the time, or among the largest bank mergers in u. s. history. and, of course, that trend continues. second, despite all of the merger activity, a large number of medium to small banks remain in the united states. moreover, by most measures of performance these small banks are more than a match for their larger brethren for many bank products and services. when a megamerger is announced it is not uncommon to read in the press how small banks in the affected markets are looking to take advantage of the business opportunities created thereby. research seems to support their optimism. lastly, while the overall number of banking organizations has fallen since 1980, this does not mean that new, or de novo, entry has not occurred. from 1980 through 1997 some 3, 600 new banks were formed in the united states. in large part because of the continued viability of smaller banks, while the national concentration of banking assets has increased substantially since 1980, measures of local market banking concentration have remained essentially unchanged. indeed, the stability of local market concentration in the face of such a large consolidation of the banking industry is remarkable, and bodes well for the competitive vitality of local banking markets. while the reasons for bank mergers are varied, the bottom line is that the united states is well on its way to developing a truly national banking structure for the first time in its history. we are not quite there yet, but i do not think it will take too many more years. future directions in bank supervision what do all of these changes mean for how we supervise and regulate banks? analysis of competition clearly, as the banking industry consolidates we need to maintain competitive markets. competitive markets are our best assurance that consumers receive the highest quality products at the lowest possible prices. as i discussed earlier, there are many reasons to believe that in recent years competition has increased greatly in markets for a large number of financial products and services. this is true for many products purchased in local, regional and national markets. however, in some cases we still observe potential competitive problems with a proposed bank merger. fortunately, the

based deposit insurance premiums, and such debt would provide an extra cushion of protection for taxpayers. an additional benefit of having subordinated debt traded on the open market is that price movements would provide a clear signal of the market ’ s evaluation of the bank ’ s financial condition that, even if it were not used to help price deposit insurance, could serve as an early warning aid to supervisors. subordinated debt is not, however, without its problems. for example, the risk preferences of such creditors are aligned with those of the fdic only when the bank is clearly solvent. at or near insolvency, subordinated debt holders may be willing to “ bet the bank ” in order to increase the chances that they will not suffer a loss. the fact that the bank closure decision is still in the supervisor ’ s hands is another complicating factor. in addition, it is unclear just how deep and liquid a market in bank subordinated debt would be, although limiting any requirements to the largest banks would ease this concern. for example, at the end of last year only one - half percent of banks with less than $ 50 million in assets issued subordinated debt, but 83 percent of banks with total assets of $ 10 billion or more did so. however, it appears that much of existing bank subordinated debt is held by the bank ’ s parent holding company, not independent third parties. thus, the question of how deep and liquid a market might evolve remains. for these and other reasons, an operationally feasible program for mandatory subordinated debt would require a considerable amount of careful thought. still, in my judgment it is thought that might prove very worthwhile. the need for financial modernization technology and globalization are changing markets all over the world, but perhaps none have been more affected than the financial markets. yet in the united states much of our legal framework has essentially not changed since the 1930s. the resultant pressure on financial institutions to be able to compete has thus been reflected in the search for loopholes and in efforts by regulatory authorities to find ways within their charter to permit new activities. the process is not only inefficient, but creates new inequities, institutions that may be producing unintended risks, and the misallocation of resources. that is why my colleagues and i are such strong supporters of h. r. 10, the financial modernization act of 1998, which the house passed last month and the senate banking committee will be discussing next week. this