"Enhanced risk management, by increasing our ability to better focus on probabilities, will tend to flatten cyclical lending patterns," Greenspan said in remarks to a banking conference in Chicago.

"The loss of high quality borrowers thus introduces not only systematic vulnerabilities but also portfolios that are less idiosyncratic and more sensitive to the business cycle," he said.

"Risk quantification should lead to tighter controls and assigned responsibilities. The risk effects of lending officers' decisions can be recognized in a more timely fashion, thus reducing the cyclical attitudinal swings in banking," Greenspan said.

Greenspan Speaks