Stiff bank competition, fewer bankers' daughters
Boston — Cautious and unromantic fathers, it is said, used to advise sons seeking financial security to marry the local banker's daughter. Well, there are going to be fewer such opportunities in the future.
We don't know for sure if bankers are going to have fewer daughters. But we do know there will be fewer banks. Both technology and deregulation are increasing the competition in the business of finance, once considered so stodgy and secure. Many banks, savings-and-loan institutions, and mutual savings banks will not survive as independent entities, usually merging with stronger institutions.
So far, concentration in the banking and thrift industry has not been rapid. In fact, the number of commercial banks insured by the Federal Deposit Insurance Corporation (almost all banks) increased by 71, on balance, between the end of 1979 and the end of 1980 as new charters outnumbered mergers or failures. The number of thrift institutions, on the other hand, has been going down. The Federal Home Loan Bank Board had some 4,250 institutions (savings-and-loan associations and mutual savings banks) as members at the end of 1980. This number had dropped to 4,131 by the end of August this year. The number of voluntary mergers was 37 in 1979, 108 in 1980, and probably almost 200 this year (151 at the end of September). Moreover, the number of involuntary mergers initiated by regulatory authorities amounts to 14 so far this year, way above the total for any recent year.
The number of mergers and acquisitions for both banks and thrifts is expected to speed up. ''We will see a significant reduction in the number of banking units,'' predicts Joel Bleeke, a management consultant with McKinsey & Co. He and James Goodrich have just completed a study entitled ''Capitalizing on Opportunities Created by Deregulation of the Banking Industry.'' By looking at the effect of deregulation on other industries, such as the brokerage business, airlines, and trucking, the authors conclude: ''Once deregulation occurs, the speed of industry adjustment to the new equilibrium is very rapid, with major adjustments completed within a period of two years.''
Within the brokerage industry, for instance, the number of New York Stock Exchange firms doing business with the general public declined from a few more than 400 to some 360 in the two years after the introduction of competitive commissions in 1975. Commission rates for institutional transactions dropped nearly 50 percent.
In the banking industry, the McKinsey consultants expect some of the sharpest competition to occur between the big New York or California banks and major regional banks. They figure five to seven firms could emerge as ''winners'' in each of five separate areas of banking business, should restrictions on interstate banking be removed or diminish significantly. These are retail (serving the general public); domestic wholesale (serving corporations); international wholesale; trading (foreign exchange, etc.); and trust (managing pension funds and other investment funds).
Mr. Bleeke does not expect the small-town banks to be hit hard by these major national banks so quickly. Their markets are not so attractive to the big banks. Nor is the cost structure of the big banks competitive with the relatively low overhead of some small-town banks.
What will hurt the small banks is the removal by 1985 of interest rate ceilings on savings deposits. As their cost of money increases, Mr. Bleeke figures, there will be ''major consolidation'' among these banks. ''In a deregulated industry, the weak firms become rapidly much weaker,'' he warned.
In Washington, legislators are considering bills that will speed up deregulation. For instance, the Senate Banking Committee chairman, Jake Garn (R) of Utah, recently introduced legislation that would allow federal S&Ls to offer checking accounts, make loans for real estate, and authorize commercial lending and investment in corporate debt instruments. For federal banks, the Garn measure would raise the limit on the amount of money that banks may lend and eliminate federally mandated down-payment requirements. It would allow them to underwrite municipal revenue bonds. And it would open the door for both them and the thrifts to operate and sell interests in money-market mutual funds.
Richard Pratt, chairman of the Federal Home Loan Bank, has proposed legislation that would permit federally chartered S&Ls to offer checking accounts to any customer, including corporations, which are now the exclusive preserve of commercial banks; expand into the small consumer loan business; allow state-chartered S&Ls to convert easily into a federal S&L or federal savings bank; and so on. That bill has White House endorsement.
Then there is a bill approved by the House Banking Committee that would let banks or thrifts acquire troubled thrift institutions, including those in other states. It would be a step toward interstate banking.
Meanwhile, the state legislators are also moving toward deregulation.
In Massachusetts, a massive 200-page bill has been introduced which would allow all state-chartered banking institutions, including thrifts, to offer the same services that commercial banks can provide, including regular checking accounts and full-scale commercial lending and trust services; permit statewide branching; and allow mergers of commercial banks and thrift institutions.
South Dakota and Delaware are allowing out-of-state banks to operate locally under certain circumstances. The New York State Assembly has been considering legislation that would allow out-of-state bank holding companies to acquire up to two offices in New York City. Illinois, long a preserve of so-called ''unit banking,'' passed a bill this year allowing bank holding companies to acquire banks in five regions of the state. Indiana has been considering statewide branching.
In other words, the banking business is loosening up, facing greater competition. Those bankers' daughters may become even more cherished objects of calculated affection.