Financial Update (July-September 1998)


Cover Story

Choice of Capital Instruments

New Look for Financial Update

Check Growth

Bank Consolidation and Lending

Technology in Banking


Year 2000

Did You Know?

Data Bank

The Docket

Technology Drives Banking
Into the 21st Century

Smaller institutions can help their customers wend their way through the abundance of technological innovations, becoming "the AAA of the financial services industry."
— Jack Guynn, President & CEO of the Federal Reserve Bank of Atlanta

M egabanks and community banks can coexist in a financial landscape that has been — and will continue to be — transformed by technology, according to Atlanta Fed President and Chief Executive Officer Jack Guynn. Speaking in Hamilton, Bermuda, recently at the annual meeting of the Georgia Bankers Association, Guynn looked at the ways technological innovations have changed the financial services industry and offered his projections for the industry's future.

The industry has seen an increase in both profits and competition, thanks in part to the healthy economy. But Guynn believes these gains have resulted chiefly from innovations in computers, data processing, telecommunications and other areas, which, along with "intellectual technologies" like derivatives, have helped banks increase revenues while simultaneously reducing costs and risks.

Guynn cited mortgage- and credit-card-backed securities as examples of innovations brought about by technology. These and other innovations, along with older technologies like ATMs and voice-response telephone systems, will, in the long run, he said, "change the very nature of financial intermediation."

Banking in the Future

The emerging financial services industry, Guynn predicted, will include four types of institutions — megabanks, electronic and on-line disintermediaries, specialized financial boutiques, and small and community banks — and technology will play a key role for each of these.

Despite skepticism about "all-things-to-all-customers" megabanks, with their leadership in the use of technology in such areas as credit scoring and securitization, Guynn said he believes megabanks are here to stay. Advocates of on-line disintermediation, he said, believe the Internet is "the ultimate counterparty matchmaker" that will allow do-it-yourself banking. Financial boutiques will offer many of the same services as megabanks and on-line banks, but boutiques will also originate and manage products that are repackaged by megabanks.

Small and community banks can hold their own in the changing banking environment, Guynn said. These banks "don't necessarily have to be ahead of the technology curve; (they) just have to make sure (they) don't get behind it."

Smaller institutions can help their customers wend their way through the abundance of technological innovations, becoming "the AAA of the financial services industry," he said. "The financial system of the 21st century . . . will be a massive, interlocking network of technology and financial resources. And for the average customer, it could be easy to get lost. Small and community banks know their passengers, they know their destination, and they know how to get there."

For the complete text of Guynn's speech, click here.