Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, November 3, 1993 TAG: 9311030070
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The General Accounting Office said only the strongest banks should be allowed to operate interstate. It said antitrust enforcement should be stepped up to ensure that the industry remains competitive.
The agency, which did the 212-page study at the request of Sen. Donald W. Riegle, D-Mich., chairman of the Senate Banking Committee, was generally favorable toward allowing banks to operate without regard to state boundaries or regional territories.
But GAO warned that "problems can arise if banks are not well-managed and well-regulated . . . or credit availability is reduced to those bank customers whose borrowing needs are not easily met elsewhere."
"The best way to minimize the risks to the quality and availability of banking services is to ensure that [individual metropolitan area] markets remain competitive through vigilant antitrust enforcement," the report said.
It also said regulations designed to make sure banks lend in poor neighborhoods should be adjusted to reflect the rise of nationwide banking.
On the plus side, interstate banking could make banks less susceptible to failure by allowing them to spread their loans more easily across more regions, said the GAO, the congressional watchdog agency.
On the other hand, the soundness of a large bank is more critical than that of a small bank, because failure of a single large institution could seriously hurt local economies and the taxpayer-backed Federal Deposit Insurance Corp.
"The risk of such harm would be minimized if interstate expansion is restricted to well-capitalized and well-managed banks," the GAO said.
All states except Hawaii allow interstate banking with varying degrees of restrictions. But by federal law, interstate banking must be done through holding companies - an expensive and cumbersome structure, bankers complain.
Treasury Secretary Lloyd Bentsen last week recommended letting holding companies consolidate their operations into branch networks. Both the Senate and House banking committees are conducting hearings on the proposal.
The GAO study minimized a number of objections often raised by interstate banking opponents, which include small banks.
It said there probably would be fewer independent banking companies under relaxed interstate restrictions, but "increased interstate banking does not necessarily mean a reduced role for smaller banks."
Between 1986 and 1992, small banks have maintained their market share of about 20 percent and increased their share in nine of the 16 states where interstate banking, via holding companies, exists.
The report also said consumers could benefit from the wider range of services typically offered by larger banks and by elimination of the need to maintain separate accounts to bank across state lines.
"Some communities and small businesses could experience disruptions in established lending relationships when local banks are acquired by out-of-state companies."
by CNB