The rapid pace of consolidation of banks in the United States has greatly improved the stability of the U.S. financial system, Federal Reserve Chairman Alan Greenspan said today.

The removal of legal barriers to consolidation in has led to a “striking” improvement in the ability of big banks to make small-business loans over a wider geographical area, Greenspan said in remarks prepared for delivery at the American Bankers Association’s annual convention in New York.

“The combination of the resultant geographical diversification with the product line diversification facilitated by technology and the removal of outdated legal prohibitions has, in my view, greatly strengthened the stability of our financial system,” he said.

“Banking history as recently as the 1980s and early 1990s would have been quite different had our banking structure then been more similar to that of today,” Greenspan

If all the mergers currently announced are completed, the 10 largest bank organizations in the U.S. will account for about 51% of domestic banking assets, nearly twice their share in 1995, the Fed chairman said. About 2,400 banking organizations have been absorbed by other banking entities since 1995, excluding holding companies but including about 100 announced, but not yet completed mergers, he said.

Still, size and diversity aren’t the only way to succeed, and better risk management is “the only truly necessary element of success in banking,” Greenspan said.

Greenspan said banks began to become more selective about lending before the 2001 recession. That, he said, strayed from the historical trend of banks tightening lending standards at or, more often, after cyclical peaks, and thereby accentuating economic decline.

The Fed chairman said technological advances have also played an important role in improved financial systems, though they are “a two-edged sword” for traditional banks that have used technology for better risk management while their rivals use it to make inroads on their business.

Technological additions to productivity are “notoriously hard to measure in banking, but have visibly contributed,” he said.

Greenspan didn’t comment on monetary policy or the overall U.S. economy in his speech.