Save big banks -- and small ones

After all the talk in recent years about the dangers of default by portions of the US banking system, the public should be reassured by the way in which federal banking regulators have moved to shore up the position of several ailing financial institutions. In Tennessee, federal officials quickly forced a sale of a number of banks following the collapse of United American Bank of Knoxville. Meanwhile, in a separate action, the giant Bank of America has announced that it will buy the troubled Seafirst Corporation, the parent firm of the Seattle First National Bank. That means that the largest bank in the Pacific Northwest and the largest bank in California will now be owned by the same controlling financial institution.

It is this very type of swift action by federal regulators that should allay fears about what might happen if one of the larger US banks ever found itself unable to recoup questionable loans. In the case of the Seattle First National, which many people in the Pacific Northwest had long looked upon as a tower of banking strength, the questionable loans were primarily energy loans, many of them originated by the Penn Square Bank of Oklahoma, which failed last summer.

Beyond the fast federal (and state) action in these cases, however, there is another aspect that deserves the closest attention of Congress and the American people. That is the extent to which the US is willing to move toward interstate banking. Legislation passed by Congress last year provides that in the case of seriously troubled banks, out-of-state banks can come in for a takeover as a last resort. In short, interstate banking.

The Seattle situation represents a major step toward interstate arrangements. Nor is the action unique. New York's Citicorp, for example, took over a California-based savings association last year.

Should the nation move toward interstate banking? Legislation introduced by Senator Tsongas and Congressman Frank of Massachusetts would allow interstate banking in the New England region among states that adopt reciprocal banking agreements. Two states, Massachusetts and Maine, have already enacted such legislation. Meanwhile, a number of bills in Congress over the years have advocated interstate banking.

To an extent, interstate banking is already here, although on a de facto basis. Many major banks have already turned their credit card operations into interstate arrangements.

Congressional banking committees would seem to have an obligation to take another look at the issue of interstate banking. In an age when economic concentration has marked more and more industries, would it be in the nation's best interests to see the disappearance of the smaller, often neighborhood or community-oriented, local banking institution? In light of the Seafirst-Bank of America linkup, Congress should once again examine the issue.

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