Welcoming Remarks for the 42nd Annual Conference on Bank Structure and Competition*

Good morning. I'm Michael Moskow, President and CEO of the Federal Reserve Bank of Chicago. It's my pleasure to welcome you to our 42nd Annual Conference on Bank Structure & Competition, the longest-running annual conference in the Federal Reserve System.

The success and longevity of this conference can be traced first and foremost to the quality of the speakers and presentations each year. This year is no exception, with an outstanding array of keynote presenters, including the heads of two federal bank regulatory agencies, the chairman and CEO of one of the largest banks in the country, and one of the world's most well-known and influential academic economists. I'm certain that you'll find these presentations noteworthy, thought provoking, and entertaining.

The Bank Structure Conference, as we call it, has long-since expanded its focus beyond the structure of banking markets and how that structure affects bank performance. Each year we choose a theme that spotlights a pressing issue in the world of banking and, more broadly, financial markets and institutions. In recent years the conference has tackled the issues of corporate governance, government-sponsored enterprises, and the role of the financial safety net.

Our conference theme this year is "Innovations in Real Estate Markets: Risks, Rewards, and the Role of Regulation." No banking issue directly touches more people than real estate lending. When people talk about interest rates, many discuss their mortgage payments and whether they should refinance. This has never been more true than today, when about 69 percent of American households own their own homes—an all-time record.

Innovations in financial markets have been an important source of this increase in homeownership. Many people who would otherwise be forced to wait years, perhaps decades, before buying a home can now use adjustable rate, option-ARM, no-money-down, or other innovative mortgage instruments to afford the house of their dreams. And those that already own have benefited as well. The real estate loan has never been more flexible as a general lending instrument. Homeowners can now use the equity in their home to finance many different types of higher-interest debt or smooth their consumption through difficult times, such as when a family member loses a job or requires a long hospital stay.

These benefits can accrue beyond the individual homeowner. The last recession was a mild one partly because these financing innovations continued to facilitate the growth in mortgage lending and refinancing, supporting growth in residential investment and household consumption during the downturn and early recovery. And once people acquire equity in their homes, they have additional incentives to invest in their homes and communities.

But these innovations have also generated risk—the risk that comes naturally from leverage. With less equity, people have less of a cushion to withstand adverse shocks to home prices or interest rates. Today, many believe that home prices have little room for additional growth and are more likely to fall than to rise further, especially in particular housing markets on the East and West Coasts and in some cities in the South and Southwest. Plus, with many adjustable-rate loans being made in a historically low interest rate environment, some people will soon be faced with these loans repricing under less favorable financial conditions.

Our theme panel this morning should give us a good overview of the pressing issues that real estate markets pose for banks and other financial institutions. Ken Thompson, chairman, CEO, and president of Wachovia Corporation, will give us the insights of a banking industry leader at lunch today. After two more housing-related sessions this afternoon, we resume tomorrow morning with a keynote address by Robert Shiller from Yale University. As you know, Bob predicted the price declines in the equity markets several years ago, and he has now issued similar warnings about housing prices.

Our Friday morning panel on federal preemption of state banking laws should provoke vigorous debate, especially in light of recent aggressive maneuvers by states to defend their regulatory turf.

John Dugan, the Comptroller of the Currency, will deliver tomorrow's final keynote address. The conference concludes with concurrent sessions that follow Comptroller Dugan's luncheon speech.

And now, I'd like to introduce this morning's keynote speaker. For 17 of the last 18 years, we've been honored with a keynote address by former Fed Chairman Alan Greenspan, who first addressed this conference in 1988, his first full year as chairman. This year, we both continue a tradition and begin a new one with a keynote address by the new Chairman of the Federal Reserve, Ben Bernanke. Ben became chairman of the Federal Reserve Board on February 1 of this year, after having served on the Board previously from 2002 to 2005. In the interim, he was Chairman of the President's Council of Economic Advisers.

Before joining the Board the first time, Ben was professor of economics and public affairs and chairman of the economics department at Princeton University. And before joining Princeton in 1985, he taught at the Graduate School of Business at Stanford University. Ben's stellar academic career also includes visiting stints at NYU and MIT. He has published a great number of scholarly articles on monetary policy and macroeconomics, as well as several books and two widely used textbooks. He is the former editor of the American Economic Review. He has also served as Director of the Monetary Economics Program of the National Bureau of Economic Research and as a member of its Business Cycle Dating Committee.

We're very grateful that Ben could be here today to speak at our conference, and we hope that it's the beginning of another long tradition. Please welcome Federal Reserve Chairman Ben Bernanke.

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*The views presented here are my own, and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.