Legislation that will permit unfettered interstate banking nationwide and predictably lead to a wave of mergers and acquisitions that concentrate financial power in a few giant corporations is just a Senate vote away from enactment on Capitol Hill. If passed, as expected, the measure will eliminate many unnecessary restrictions both on banks and their customers but likely diminish the market share of smaller, strictly local institutions.
In a companion step, congressional conferees accepted an administration-backed bid providing incentives for increased community development lending, especially in inner cities. The overall federal budget crunch, however, will limit the program to just a fraction of the initiative proposed by President Clinton during his run for the White House.
The legislative breakthrough, after years of wrangling, is in sync with the spurt of bank consolidations that has changed the business scene in Baltimore and many other cities. Today, Mercantile Bank and Trust remains the largest of the locally owned independents and operates under a corporate philosophy striving to maintain this situation. Maryland National Bank, the area's largest, has become part of giant NationsBank. First National Bank of Maryland, now owned by Allied Irish Bank, apparently will get the go-ahead in the new legislation to establish branches in other states without having to set up subsidiaries.
While the loss of local identity may be a matter of nostalgic lament in this and other cities, the real test will be whether huge national banks actually provide more capital, stability and services to the states and municipalities they serve. They talk a good game but consumer advocates (and many small community banks as well) react viscerally to gigantism in the industry. What is undeniable is the momentum already in the banking system for greater efficiency through consolidation.
Edward E. Crutchfield Jr., chairman of First Union Corp of Charlotte, N.C., told the Wall Street Journal that eight to 10 institutions, perhaps including his own, will account for 50 percent to 80 percent of the nation's banking business in three to five years. The astounding 80 percent figure is not out of the question, according to Federal Reserve governor Susan M. Phillips.
In campaigning for the elimination of federal obstacles to the revolution in their industry, American bankers cite the need to compete with less-regulated rival financial institutions in this country and abroad. Bipartisan support on the Hill virtually assures that this will be one of the major economic achievements of the congressional year.