Guynn Reflects on Changes in Banking and Economics and Addresses Future Concerns

For Immediate Release: August 22, 2006

ATLANTA–Reflecting on his 42 years in central banking, Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta, said that revolutionary change in banking and financial services is a major part of our nation’s continuing economic success. In his remarks, Guynn described technology, competition and a growing demand for information as catalysts for change, and he also discussed evolutions in the nation’s economy and monetary policy.

Guynn began his remarks to the Kiwanis Club of Atlanta by noting that the Federal Reserve leveraged technology to move from inefficient “green eye-shade” ways of processing paper checks and cash toward electronic payments. With rapid growth in the use of credit cards, debit cards and point-of-purchase check conversion, “our vision of an efficient, predominately electronic system [for payments] is in sight.” With deregulation, Guynn noted that banking had a sometime painful transition from a stodgy industry to its dynamic status today with many choices for consumers and businesses. Despite a sharp run-up in bank failures in the 1980s, he said competition is overall a good thing for the U.S. financial sector. “Today’s financial markets are better than ever at allocating risk to those with the greatest appetite for it,” he added.

Guynn also described changes in the economy, noting that today’s fastest-growing industries, such as financial services, depend mostly on knowledge, not labor. “The march of globalization is relentless, and businesses will have to keep spending more on technology to improve productivity,” he said, adding that our financial system and economy will continue to become more interconnected. “With the emergence of China and India and increasing U.S. indebtedness, the global flow of funds will continue to grow, and our economy will depend more and more on events and decisions that occur outside our national borders.”

As the Fed evaluates these and other issues, he noted the importance of communications and said “the Fed will keep trying new and different ways to communicate important views and actions.” The main lesson of monetary policy for the past 40 years is what he termed the economically poisonous consequences of inflation. “As we should now know, a bit of inflation can get out of hand quickly, especially when consumers and businesses expect more price increases, waste time and effort trying to beat inflation and then rush to spend more money in a vicious inflationary cycle.” But he said he’s “sure future policymakers will remember the lessons we learned in the past 40 years about what happens when you start down the slippery slope of trading inflation for growth.”

The Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which encompasses Alabama, Florida, Georgia and parts of Louisiana, Mississippi and Tennessee. As part of the nation’s central banking system, the Atlanta Fed participates in setting national monetary policy, supervises numerous commercial banks and provides a variety of financial services to depository institutions and the U.S. government.

Contact: Jean Tate 404-498-8035