Higher interest rates need not spell financial difficulty for the nation's banking industry, Federal Reserve Board Chairman Alan Greenspan said Thursday.
"I am not overly concerned about the possible impact on bank earnings" should interest rates rise, Greenspan said.
"Banks do not appear to have significantly increased their interest rate risk in recent years," Greenspan told those attending a Chicago Federal Reserve Bank conference.
Greenspan said the industry has made major progress in recovering from "a very difficult period."
He predicted that, as the economy continues to improve, loan demand likely will increase, encouraging banks to reverse their move into government bonds and other securities.
"The higher spreads associated with loans will support earnings," he said.
Unless the economy takes an unexpected nose-dive, Greenspan told the bankers, loan loss provisions can be expected to continue to decline as problem assets recede.
Greenspan predicted that the industry will remain healthy in the short and intermediate terms, but that it may face greater difficulties over the long haul.
As American businesses increasingly turn toward sources other than banks for loans, the banking industry must be able to provide a complex set of financial services, not just loans, he said. Bankers have been pushing for expanded powers to sell insurance, securities and branch out nationwide.