growth at these institutions in 2003 and 2004. by march of this year, cre lending had reached 28 percent of aggregate community bank assets, a new record for community banks that exceeded the previous record set in the early 1990s. the bulk of cre lending is in the form of commercial mortgages, which themselves have risen by an average of 10 percent annually since 1998. however, construction lending has also been assuming a larger share of the pie. among community banks, construction loans increased at a compounded growth rate of 17. 4 percent annually over the same period. this is a remarkable pace of growth - and a growing concentration for community banks. cre lending is a traditional and natural part of the community banking franchise. underwriting practices continue to be much better than they were in the troubled days of the 1980s. there is no indication at this time that the overall credit quality of cre exposures at community banks has deteriorated, although there are signs that some underwriting standards have been under assault from competitive pressures. nonetheless, credit risk concentrations are a critical “ franchise ” risk for bankers, especially community bankers, and they can assume even greater importance when they involve high - growth lines of business. successful identification and management of these concentrations requires adherence to good credit fundamentals. strong capital ratios - ratios that are well in excess of regulatory minimums have been a key factor in managing credit concentrations and a striking attribute of the most profitable community banks. more generally, the competitive drive to win borrowers should not be allowed to overcome the disciplines of prudent lending practice. as economic conditions and business loan demand have improved, we have expected and seen some degree of easing in commercial lending standards. competitive pressures and the natural desire to generate loan volume, however, can provide ample temptation to make lending decisions that bankers and their supervisors will live to regret. in a similar vein, supervisors have been attentive to indications that home equity lending standards and risk - management practices may not have kept up with the very rapid growth in this form of lending. last month, the federal banking agencies issued guidance to the industry that was aimed at reinforcing sound practices for lending and credit risk management. i encourage bankers to review that guidance and consider its recommendations carefully. let me conclude with a few thoughts on managing interest rate risk. in the low - rate period that ended last summer, bankers faced a natural temptation to extend maturities in search of more - attractive rates of return. from 2000 to early 2004, the share of

in part because of experiences of high inflation in many countries in the 1980s. almost everywhere, public opinion eventually turned against allowing inflation to continue. this public pressure has reinforced the trend against inflationary policies. increased competition among currencies, driven by the confluence of factors that i just described, has improved central bank performance by changing the ability and the incentives of governments and central banks to pursue high - inflation policies. in effect, currency competition has raised the costs of poor policy and thus promoted central bank incentives to maintain low inflation. this change has led many governments to be more willing to adopt institutional changes to improve central bank governance that have bolstered central bank credibility for maintaining low inflation. such changes have included greater central bank independence, which has typically been granted in conjunction with a mandate including the achievement of low and stable inflation as one of the goals of monetary policy. that is, policy is credible because the central bank ’ s objectives are clear to the public see randall s. kroszner ( 2006 ), “ the conquest of worldwide inflation : currency competition and its implications for interest rates and the yield curve, ” speech delivered at the cato institute monetary policy conference, washington, november 16, www. federalreserve. gov / boarddocs / speeches / 2006 / default. htm. for emerging - market countries that had experienced high inflations, another aspect of globalization fostering currency competition is the amount of physical dollars now present in these countries that allow citizens to conduct transactions and store liquid wealth without holding the local currency. over one recent period, the fraction of u. s. currency estimated to be held in foreign countries rose dramatically, from less than 20 percent in 1980 to as much as two - thirds in the late 1990s, and today the total nominal amount is in the neighborhood of $ 400 billion. see u. s. department of the treasury, board of governors of the federal reserve system, and u. s. secret service ( 2006 ), the use and counterfeiting of united states currency abroad, part 3, report to the congress ( washington : department of the treasury ), october 25, www. federalreserve. gov / boarddocs / press / other / 2006 / 20061025 / default. htm. and because the central bank can be held accountable for failing to achieve its objectives. when citizens are more aware of the costs of inflation, and when governments are less able to reap benefits from high inflation, institutional reforms that make