great deal of strength and resiliency in dealing with challenges of the past, and it still seems as strong and as well positioned overall now to handle stress as it has been in many years. i have no doubt that the u. s. banking system will continue to grow and that it will remain central to the nation ’ s financial system. to do that, though, requires that we all to adapt to changing times and that banks manage risk carefully in both good times and bad.

“ free banking ” laws of the nineteenth century. the dual banking system not only fosters and preserves innovation but also constitutes our main protection against overly zealous and rigid federal regulation and supervision. a bank must have a choice of more than one federal regulator, must be permitted to change charters, to protect itself against arbitrary and capricious regulatory behavior. naturally, some observers are concerned that two or more federal agencies will engage in a “ competition in laxity ”, and we must guard against that ; but the greater danger, i believe, is that a single federal regulator would become rigid and insensitive to the needs of the marketplace. thus, so long as we have a federal guarantee of deposits, federal reserve guarantee of intraday payments over fedwire, and other elements of the safety net - - and, therefore, so long as there is a need for federal regulation of banks - - such regulation should entail a choice of that regulator at the federal level. as you are well aware, the federal reserve has long been a strong supporter of the dual banking system in the context of efficient supervision. that is why we, along with the fdic, have sought examination partnerships with the state banking regulators. currently, the fed has cooperative agreements with about three dozen states, calling for either joint examinations or alternate year exams. overall, our experience with these programs has been quite positive, in part because of the quality of state supervision in the states with the cooperative agreements. indeed, the evidence suggests that safety and soundness of state banks compare quite favorably with national banks, possibly reflecting the benefits of having both state and federal supervision. for example, during the banking crisis of the late 1980s, when the failure rate by any measure breached the prudent threshold i mentioned earlier, the national bank failure rate was considerably greater than for state banks. while bank failure is determined by more than just the supervision process, these data nevertheless speak well of the quality of the state supervisory process and the ability of the state and federal regulators to function together efficiently. the dual banking system, however, despite its advantages and achievements, is under attack. this attack is neither particularly intentional nor particularly coordinated, but rather consists of the unintended consequences of statutory and regulatory changes aimed at achieving broader policy objectives. i am referring primarily to the consequences of the 1994 interstate branching legislation, coupled with the occ ’ s recent liberalization of regulatory procedures for operating subsidiaries of national banks. these events may have served to tip the balance