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Show Banks need restructuring, comptroller says By CHERIE HUBER Robert L. Clarke, Comptroller of the Currency, spoke to the Utah Bankers Association at their 1988 Business and Banking Forum in Salt Lake City. He spoke on the continuing effort to restructure the banking system, an effort to extend the range of services that banks offer so that they can compete with the emerging "financial supermarkets" super-markets" and provide the consumer with better financial services. ser-vices. He opened his remarks by noting that the Utah bar has more graduates of the George Washington University's National Law Center than any other state bar association and that he works with many Utahns in Washington. He pointed out some of the contributions that Utahns have made to good government in Washington including Marriner S. Eccles who became chairman of the Federal Reserve Board about 50 years ago. Former Senator Wallace Bennett served on the Senate Banking Committee. Dick Pratt headed the Federal Home Loan Bank Board. Brent Beesley was in charge of the federal savings and loan insurance fund. Charles Bradford is chief economist at the National Credit Union Administration. Jordan Luke is chief counsel at the Bank Board while an "adopted son of the state," Danny Wall is the head. Topping the honor roll of Utah Banking leadership, Mr. Clarke said, is Senator Jake Garn, chairman of the Senate Banking Comm ttee. Senator Garn, he said, has made an enormous enor-mous contributi ?n to the effort to restructure the banking system sys-tem even though at this point the restructuring is an idea rather than a fact. Mr. Clarke quoted another Utahn, Jack Anderson, on what will happen if banking is not restructured, "Hamstrung by the rules, banks have watched as virtually every banklike or thriftlike thrift-like product has been taken over by diversified financial ser- vices tirms.-.the current situation will slowly lead to a less safe and sound banking system. And a threat to banking is a threat to the availability of loans in the private sector; a threat to the financial system in which trillions of dollars change hands each day; a threat to the conduct of monetary policy; and even a threat to the safety of savings." Banking restructuring is needed first of all to reverse the industry's 15 year decline in profitability to prevent bad things from happening, Mr. Clarke said. On the brighter side, he pointed out, one of the principal reasons for removing the barriers that prevent banks from competing com-peting is that consumers, both individuals and businesses, will benefit. If the barriers between the banking and securities industry were relaxed there would be benefits in many areas. In the area of the underwriting of municipal bonds, the courts have interpreted inter-preted the Glass-Steagall Act to bar commercial banks from underwriting most municipal revenue bonds. These bonds are the major source of funding for the construction of public-service public-service facilities such as airports, hospitals, roads and bridges. Mr. Clarke said that the absence of bank competition in the revenue bond underwriting raises the cost of municipal financing. If Glass-Steagall restrictions in this area were eliminated, increased in-creased competition could reduce borrowing costs for state and local governments. "When spread over the long life of the many billions of dollars of revenue bonds issued annually, reductions in the interest rate of a few basic points on each bond amount to substantial reductions in financing costs. "Indeed, ten years ago analysts predicted that issuers could save as much as $369 million a year if banks were allowed to compete in this area. The volume of newly issued revenue bonds has more than doubled since then," Mr. Clarke told the bankers. He also said that consumers would save in another way, through savings on tax assessments, fees and user charges that often accompany revenue Donu-iu,.uCU If the Glass-Steagall barriers were removed, banks could also underwrite corporate securities. Underwriting opportunities for small or regional companies would be favorable to region commercial banks and the banks would be more familiar w.th the company's total financial needs and could arrange the best total package. Wider underwriting authority could greatly enhance en-hance bank efforts to "securitize" commercial loans, mcludmg small business credit. The individual consumer would also benefit from more banking bank-ing competition in the securities field. Increased competition wSuld lead to cost saving in mutual funds, lower cost of mortgage mort-gage credit, and reduced interest charges on personal loans, auto loans, home equity lines of credit and credit card receiv- ab'The enhanced competition that would result from bank entry en-try into the field would improve the selection, availability and quality of financial services. And bank entry itself would strengthen streng-then the commercial banking system by increasing income-earning income-earning opportunities, thereby reducing banking vulnerability to declines in specific economic sectors and geographic markets," mar-kets," he told his audience. "The consequences for the industry if it is not restructured would be similar to what would have happened had the government govern-ment forced aircraft producers to stick with propellers after the invention of the jet engine; at best the decline of the industry into ultimate obsolescence. The consequences for the economy, eco-nomy, however, would be far greater, because if banking is allowed to decline into obsolescence, all producers, all consum- ers, ultimately would feel the direct effect." Restructuring, Mr. Clarke said, has been an issue in Washington Washing-ton for more than six years. He asked the bankers to support Senator Garn and his allies in Congress and to speak out on the issue to convince others that their interests as business people are at stake. |