Bigness in Banking

September 06, 1991

In tandem with likely passage of federal legislation permitting big banks to open branches throughout the country, the merger trend turning financial giants into behemoths is moving at whirlwind speed. The summer has seen three huge consolidations -- one in New York between Chemical Bank and Manufacturers-Hanover, one in the southeast quadrant between NCNB and C&S Sovran and now the latest on the West Coast between BankAmerica and Security Pacific. Only Citicorp will outrank them in assets.

If these are mega-regional banks, it is only a matter of time before the nation sees coast-to-coast operations emerge. In an earlier day, such moves would have sent the Justice Department's anti-trust division wheeling into battle. Part of the olde tyme America mystique, riveted by the Great Depression, was a fear/suspicion of big banks.

Yet with U.S. institutions falling off top global listings as Japanese and German conglomerates move to the fore, the Bush administration has embraced bigness as the way for the United States to compete worldwide. Rather than resist consolidation, the federal government is encouraging it not only through regulatory policies but through legislation that has now received committee approval in both the Senate and the House.

The administration is not likely to get provisions that would allow a non-financial company, say General Motors, to buy Chase Manhattan. Nor should it. But pending legislation would permit sound banks to open branches nationwide and to affiliate with securities firms. Contrary to earlier expections, passage is expected despite warnings from the likes of Sen. Paul S. Sarbanes, D-Md., that "this bill is the seeds of our destruction. . . an assault on safety and soundness. . . that will come back to haunt us in the years ahead."

With banks and savings and loan institutions already in crisis, we find little justification for preserving the status quo and quite a lot for changing it. Assuredly the Federal Deposit Insurance Corp. needs financial shoring up before its Bank Insurance Fund runs dry. Assuredly, the nation has too many banks with too much overhead to be financially healthy.

Yet Mr. Sarbanes' warnings should not be ignored. Regulatory methods must be improved to prevent a repetition of the current mess and to protect the individual citizen. A niche for small and specialty banks should be protected at all costs. The duty of banks -- and branches -- to serve the communities in which they are located must not be ignored. This is especially so for cities like Baltimore that are destined to be branching sites for super-big banks.

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