A balanced banking system

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WE know a person who -- in a moment of financial need -- walked into his local New England bank and asked for a quick loan. ``Certainly, how much would you like?'' the banker quickly replied to the startled customer, who had only two small accounts and a pending loan at the institution. Our friend's experience, of course, is not unique. Nor is that particular local bank the only type of financial institution that might indicate a willingness to extend such a loan -- even before all the inevitable bank forms were filled out and processed. Nor would a large bank necessarily be any less inclined to provide such a service or be any less genuinely friendly than that local institution. Still, the incident, we think, is a reminder of the advantages of community-based banking -- where a bank can develop a close working relationship with its customers and its immediate community.

This particular example comes to our recollection because of this week's unanimous 8-to-0 decision by the US Supreme Court upholding the concept of regional banking zones that exist under current federal and state laws. Under such regional banking pacts, banks in states entering into pacts with neighboring states are allowed to merge. At the same time -- and here's the rub for the nation's biggest banks -- the pacts do not allow banks operating outside the zones to enter into such mergers. In other words, the pacts provide a green light for regional mergers and acquisitions, but a red light to keep out the nation's largest banks, which have the potential of becoming truly national interstate banks.

In the case in question, a giant New York bank and two other large national banks had challenged a proposed merger in a regional zone comprising Massachusetts and Connecticut, contending that they too should be allowed to enter into mergers in the two states.

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The court decision is most likely not the last word on the issue of regional zones and interstate banking. Twenty-one states now have laws allowing regional mergers involving neighboring states. But the large New York banks, and, to a lesser extent, large California banks, are urging Congress to rewrite existing banking statutes to force states entering into regional compacts to eventually allow banks from other parts of the United States to enter their jurisdictions also, say after five years or so. A House committee is grappling with the issue, although opposition to interstate banking is intense within Congress, especially within the Senate.

At the least, the court's decision goes far in strengthening the position of regional banks. Many of these banks are large operations in their own right. But still, considered in perspective, they are much smaller than the giant financial-center banks of Manhattan or California. The pending regional merger of the Bank of New England and the CBT Corporation of Connecticut, for example, would create an institution with asssets of around $15 billion; a somewhat similar pending merger of the Trust Company of Georgia and the Sun Banks of Florida would create an institution also with assets of $15 billion. New York-based Citicorp, by contrast, has assets 10 times as big -- more than $150 billion.

The day of the purely local bank -- the little institution down the block with one, or maybe two, branches -- looks increasingly questionable in today's national financial setting, as banks more and more turn to extensive electronic and computer systems.

All the same, a balance seems in order between bigness in banking and local concern. This week's high-court ruling, by strengthening regionalism within banking, provides for such a balance.

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