WASHINGTON — Federal Reserve Chairman Alan Greenspan said Friday that commercial banks and banking regulators need to rely more on the emerging field of risk management to control loan defaults during periods of economic weakness.

Greenspan said it was only human nature for banks to get overconfident about their lending practices during boom times and then to sharply retreat from making loans when the economy weakens.

"To the majority of banks, the environment of contagious optimism makes more and more proposals seem bankable" during times of prosperity, Greenspan said. And on the other side of the ledger, when the economy begins to weaken, banks and their regulators will overreact, he said.

In response to questions, Greenspan told his audience at a banking conference in Chicago that the long-term outlook for the economy is "increasingly, persuasively good" even though the short-term prospects for a rebound in business investment are still "rather mixed."

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Greenspan said the huge increases in Americans' productivity in recent months — including an 8.6 percent surge in the first quarter — overstated gains in this important measure of living standards. But he said he is convinced that worker productivity has improved significantly since 1995 after more than two decades of lackluster gains.

"Something is going on," Greenspan said. "At a minimum, it is confirming that the shift in growth of the rate of productivity subsequent to 1994 is real."

In his remarks to the banking conference, Greenspan said it was natural for bankers to grow more cautious in their lending practices during bad times.

Greenspan said banks and their regulators should rely more on risk management in which banks use sophisticated computer models to help them assess the relative risks of their loans.

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