The Evolution of Consumer Finance

At the outset this morning I would like to congratulate you: 2005 marked the first year in the history of the federal deposit insurance program in which there were no failures of FDIC-insured institutions. While the banking industry clearly has benefited from a relatively healthy macroeconomic environment, I think the lack of bank failures last year is strong evidence that supervisory agencies — both state and federal — have been doing an outstanding job. In fact, one could argue that we have done too good a job, since, as our recently retired Fed Chairman was fond of observing, the optimal number of bank failures is certainly not zero, the point being that risk-taking is an essential part of banking, and even if our banking system as a general matter is taking only prudent, well-managed risks, there may still be some failures from time to time. Furthermore, risk is an inherent part of innovation, and when banks are trying new things, some will succeed and some will not. But innovation is vital to the continued growth and progress of the industry and its ability to provide the public with ever more useful and efficient financial services over time. I would like to note, as usual, that the views expressed are my own and are not necessarily those of my colleagues in the Federal Reserve System.