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Federal Reserve Bank of Chicago. "June 2001," Chicago Fed Executive Update (June 2001). https://fraser.stlouisfed.org/title/9354/item/684058, accessed on July 29, 2025.

Title: June 2001

Author: Federal Reserve Bank of Chicago
Date: June 2001
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image-container-0 June 2001 PtESEA~cN Ll i Federal Reserv ~et.Lou ....__ ___ Executive _ _ _ _ _ _ G 0 News for CEOs of Financial Institutions in the Seventh Federal Reserve District [iichicago fed.org The Financial Safety Net Fed chairman discusses pros and cons of safety net At the Chicago Fed's 37th Bank Structure Conference on May 10, Federal Reserve Board Chairman Alan Greenspan focused his keynote remarks on the benefits versus costs of the banking "safety net." The Bank Structure Conference brings together banks, academics, and regulators to discuss key public policy issues facing the financial services industry. Since the creation of national deposit insurance and the discount window, the U.S. has avoided widespread financial panics or bank runs. Although this macroeconomic stability has boosted public confidence, the safety net has insulated banking from the full effect of market forces and permitted banks to accumulate riskier asset portfolios. To lessen safety net hazards, public policy should encourage natural market processes or market-style incentives. Heading the options are more risk-sensitive pricing of safety-net access and risk-focused examination policies like the new Basel Capital Accord, which holds more market discipline at its core, expanded disclosure by banks and the assumption of some risk by uninsured creditors. To view the entire text of Chairman Greenspan' s speech, go to www.federalreserve.gov/ boarddocs/speeches/2001/ default.htm. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis RAL RESERVE BANK OF CHICAGO Also in this Issue: Financial Privacy Requirements Blurring of Banking and Commerce Why Have De Novo Banks Proliferated? "The long absence of a fire, or of an economic and financial conflagra- tion, does not suggest that we should cancel the fire insurance policy or the safety net." - Alan Greenspan Des Moines • Indianapolis • Milwaukee • Peoria
image-container-1 2 Financial Privacy Requirements Information security program and customer notice deadlines approaching Financial institutions, including bank holding companies, have a July 1, 2001, deadline to implement programs to address the information security and customer notification requirements. The regulatory agencies have established these requirements in response to provi- sions of the Gramm-Leach-Bliley (GLB) Act of 1999. The agencies' joint guidelines on information security programs require institutions to establish board-of-director-approved pro- grams containing four key attributes as noted on the accompanying chart The guidelines outline specific security measures, such as access restrictions, encryption of elec- tronic information, and training, that should be considered in the implementation of a security pro- Information Security Program Requirements 1. Identify and assess risks that may threaten customer information. 2. Develop a written plan containing policies and procedures to manage and control the risks. 3. Implement and test the plan. 4. Adjust the plan on a continuing basis to account for changes in technology, the sensitivity of customer information, and internal or external threats to information security. gram. The guidelines also encourage institutions to implement programs appropriate to their size and com- plexity, and the nature and scope of their operations. The Fed issued its guidelines as appendices to Regulations H and Y. The Fed's Regulation P implements the GLB provision on customer notification of an institution's privacy policies and practices. In addition to notification, the regulation prohibits institutions from sharing certain information with nonaffiliated third parties unless the institution satisfies notice and opt-out requirements, and a consumer does not elect to opt-out of the disclosure of information. Supervisory programs are under development to assess compli- ance with these new requirements. EMERGING PAYMENTS .· .- ~ Blurring of Banking and ComJJJefCe •••• The structure of financial institutions is evolving . • •••• • • The combination of innovative technology and banking dereg- ulation over the past two decades has led to shifts in the make-up of financial institutions, with many barriers coming down. In the 1980s and 1990s, institutions increasingly specialized in mortgages, brokerage accounts, credit cards, or other types of product lines within and across geographic boundaries. The structure has shifted again with the latest Internet craze, though it is not clear what will emerge from this change. In a special March 2001 issue of Chicago Fed Letter, Brian Mantel looks at the trend toward electronics and identifies potential scenarios for the 21st century. Among the possibilities are universal banks offering a broad range of products to a broad range of customers, niche banks serving a closely identified segment of the population, and a portal or aggregator that uses technology to compile financial products from other institutions. Mantel identifies changes in the relationship between financial institutions and corporate and consumer customers. For instance, financial institutions may begin seeking broader and more profit- ••• ab e elationships witJi their cus- . . tomers. In orcJ.er to attract more of their customers' accounts, financial institutions may need to offer a broader array of products and/ or may need to offer certain products at little or no cost. In other words, as a cost of doing business, finan- cial institutions may have to make investments in certain e-payment ventures, some of which might be unprofitable. Alternatively, other financial institutions might find consumers willing to pay fees for these services and thus develop a revenue source.
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