Early fan of bank decontrol looks ahead
Cambridge, Mass. — Eli Shapiro figures he's part of the ''intellectual roots'' of today's rapid deregulation of the banking industry. As a younger man, he was deputy research director of the Commission on Money and Credit, a group of prominent citizens which examined the nation's financial and monetary system and reported in 1962. The report included the first systematic recommendation for a relaxation of banking regulation, including banking across state lines in metropolitan areas.
Although acclaimed by President Kennedy, the report had little immediate impact. The late Wright Patman, who was then the powerful senior Democrat on the House Banking Committee, saw to that. But Dr. Shapiro finds himself ''bemused'' that many of its recommendations are coming to pass, two decades later.
Dr. Shapiro is president of the prestigious National Bureau of Economic Research, replacing Martin Feldstein, who is in Washington giving economic advice to President Reagan. He welcomes the deregulation resulting from legislation in 1980 and '82.
''A set of forces has been set loose,'' he says, ''which will, if not eliminate, at least reduce the differences among different classes of financial institutions. As competition becomes more pervasive, it will reduce the number of financial institutions in the United States and increase the size of the surviving ones. The low-cost producers will survive, services will increase, and the costs will be reduced.''
In other words, banks, thrift institutions, and insurance companies will become more like one another. They will also be fewer in number and larger.
But he does not expect all financial organizations to become one-stop institutions, providing every service from banking to savings to insurance to brokerage. ''Some will specialize and buy the services of others. They won't be one and the same.''
Dr. Shapiro, also a professor of management at the Massachusetts Institute of Technology, wonders if the 1962 commission report actually had much to do with today's changes. ''Events cause change rather than commission reports,'' he says. Nonetheless, he suspects the ideas from that report and from the 1971 Hunt Commission report, which had a similar purpose, have entered the public domain and become part of the thinking process.
One such ''event'' Dr. Shapiro was referring to was the great financial distress of the thrift industry two or three years ago, when soaring interest rates and low fixed-income assets put most savings-and-loan associations and mutual savings banks deep into the red. It prompted Congress to give the thrifts more powers to compete with commercial banks.
The 1962 commission's recommendation that banks should be able to compete in entire metropolitan areas, even across state boundaries, would have applied to such areas as those around Washington and New York. Professor Shapiro is pleased to see greater interstate banking today, although he notes, ''It is coming about in an odd way.''
Commercial banks have loan-creating offices around the nation. Some banks are buying savings-and-loan associations and failing banks in other states. ''De factom you do have interstate banking,'' Dr. Shapiro notes. The idea of the Commission on Money and Credit was that interstate banking be tried out carefully in small steps, and Dr. Shapiro isn't averse to that today. But ''open it up,'' he urges.
He's also in favor of eroding the barriers between investment banking and commercial banking. The chief barrier, the Glass-Steagall Act, was erected in the Great Depression after it became clear that some banks were abusing the financial power arising from their operations in both commercial lending and investment financing. Dr. Shapiro argues that regulation could prevent the rebirth of such conflicts of interest.
Dr. Shapiro would also like a regulatory system that would examine the soundness of the various financial institutions. They could buy federal insurance on their deposits, but the cost of that insurance would increase, along with the riskiness of the assets they held.
Through much of the '70s, Dr. Shapiro was either chairman of the finance committee or chairman of the board of the Travelers Insurance Company. So it is perhaps natural that he maintains that insurance companies should have ''the same opportunities to compete for funds as other financial institutions.'' They should not be restricted to the sale of insurance.
But he believes that these financial institution changes should be decided by legislation, not by ad hoc decisions by the institutions. ''These laws are on the books,'' he says. ''Congress ought to study them, and amend them, or say you can't do what you are doing.''
Looking at the international debt problem of the nation's commercial banks, Dr. Shapiro would like Congress to approve the $8.4 billion increase in the US quota in the International Monetary Fund. Some critics charge that provision of this money would be equivalent to bailing out the big banks.
He believes the banking regulatory authorities can practice oversight over these developing-country loans. And, if federal deposit insurance premiums went up with risks, those banks making too many international loans would face higher charges.
The National Bureau executive says: ''If the banks get into difficulty, all of us get into difficulty. So it would be bailing all of us out.''