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Banks are lax: Greenspan
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March 8, 2000: 10:09 a.m. ET
Robust U.S. economy has resulted in lenient bank lending standards
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NEW YORK (CNNfn) - The unprecedented expansion of the U.S. economy has prompted many of the nation's banks to become lax in their lending standards -- a situation that could jeopardize the banking system if left unchecked, Federal Reserve Chairman Alan Greenspan said Wednesday.
In a speech to the Independent Community Bankers of America in San Antonia, Texas, Greenspan said that despite the vibrant economy and exceptional banking conditions, " we have seen how lax standards, excesses, or fraud can cause disproportionate losses to insurance funds."
In addition to those risks, "a broader and more troubling trend is that many banking institutions view current strong economic conditions as no longer extraordinary and exceptional but rather as ordinary and expected," he said, leading to more lenient policies when it comes to lending.
His remarks came less than two days after he roiled financial markets by indicating that the Fed will "remain vigilant" to ensure the economy continues to expand without triggering inflation -- a strong hint to Wall Street that short-term interest rates will continue to rise.
Greenspan made no mention of interest rates or financial markets. Fed policy makers meet in less than two weeks to discuss the progress of the U.S. economy and monetary policy. Most analysts expect the Fed will raise its bellwether Fed funds rate by another quarter point to slow the economy.
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