WASHINGTON : Proposal for More Nationwide Banking Alarms Small-Business Groups

CATHERINE COLLINS <i> is a Washington writer</i>

Small-business and consumer groups are concerned that the Bush Administration’s plan to reform the banking industry will dry up local credit and make lenders less responsive to community needs. The Administration is pushing economies of scale, larger banks, the consolidation of smaller banks, deregulation and a nationwide banking system.

The Southern Finance Project, a labor-oriented think tank, released its new analysis of the Administration’s proposal last week, calling it “an ungainly mix of laissez-faire and regulatory business as usual.”

The Administration’s measure, parts of which are similar to several bills already before Congress, would modify deposit insurance, improve supervision by financial regulators, provide banks with investment and underwriting powers, allow banks to own and be owned by nonfinancial corporations and consolidate regulatory functions and agencies. In addition, it would remove many of the restrictions against interstate banking and branching.


It has received support from major banking trade organizations such as the Consumer Bankers Assn. but mixed reviews from Congress, which has been holding hearings on the issue.

Community banks do not like the Administration’s proposal. In addition to challenging the premise that larger, national banks would be more profitable and more sound, James B. Watt, president of the Conference of State Bank Supervisors, said the Administration’s “McDonald’s approach to banking” would “strike a death blow to smaller banks, which create most of the local credit for small businesses and entrepreneurs.” Citing a study by the Federal Reserve, Watt said 90% of all loans to small businesses are by community banks.

Watt gets support from the Southern Finance Project’s study, which found that:

* The banking industry already has the ability to diversify its sources and uses of funds geographically.

* Banks operating under geographic limits were sounder and more profitable than their counterparts operating under liberal branching and interstate regimes.

* Banks operating in more restrictive states also had lower costs of funds and lower expenses.

* In writing the Administration’s proposal, the Treasury had based much of its case on a paper by a lobbyist for NCNB Corp., the nation’s seventh-largest banking company.

The debate on how to structure the banking industry is not new. Thomas Jefferson said: “Banks are more dangerous than standing armies.”

And throughout the centuries, state and federal agencies have sought to balance the goals of competition and soundness.

The resulting American banking industry is unlike those in all other industrialized countries; banking in this country is composed largely of thousands of relatively small, locally oriented institutions.

As the price tag for the savings and loan bailout reaches $500 billion, and as the FDIC’s Bank Insurance Fund is depleted, Congress and the Administration are anxious to make changes before they have another embarrassing tax liability on their hands.

Pension Plans Tough on Small Businesses

As is the case with health insurance coverage, small businesses providing pension benefits are being priced out of the market.

A recent Hay/Huggins Co. study for the Pension Benefit Guaranty Corp. found that in the past 10 years the cost per employee of providing a pension plan in a firm with 10,000 workers grew from $19.44 to $53.64 per person annually. The costs to employers with plans covering 15 workers rose from $161.93 to $455.45 per person.

“In the fiscal year 1990, there was a 50% drop in the creation of new defined-contribution plans (in which employers provide fixed annual contributions), and a 20% increase in the termination of existing plans,” said Rep. John J. LaFalce (D-N.Y.). “The situation is even more alarming when one looks at defined-benefit plans (providing a promised amount of retirement benefit). Only 1,800 new plans of this type were created last year, but nearly 10 times that many--some 17,000--were terminated.”

The House small-business committee, which LaFalce chairs, held hearings last week to explore just what is happening to small-business pensions. Because the committee has no jurisdiction over pensions, the purpose of the hearing, said one staffer, was “to focus attention on the problem before it becomes another health insurance catastrophe.”

A Bill to Bar Permanent Strike Replacements

The right to strike--one of labor’s most effective tools for maintaining or improving working conditions and wages since the early days of the labor movement--is at the core of legislation recently introduced in the House and Senate.

The bills (H.R.5 and S.55) would prohibit employers from hiring permanent replacement workers during a strike.

Although a 1938 Supreme Court decision said employers could “permanently replace” striking workers, it wasn’t until the 1980s that employers began to exercise that right regularly because of the public perception that such conduct was unfair and unacceptable.

Former President Ronald Reagan fired the striking air traffic controllers in 1981 and hired permanent replacements.

Since then employers have used the tactic more frequently to settle labor disputes. According to a General Accounting Office study, since 1985 employers have used, or threatened to use, permanent replacements in one of every four strikes.

“There is currently no effective right to strike in this country,” said Rep. William L. Clay (D-Mo.), who first introduced the controversial legislation last year and has reintroduced it this session.

Labor and business say they are fighting for their very survival with this issue. Not wanting to lose ground, big business firmly opposes the measure, saying that because it would remove one of the risks for striking workers, it would encourage more strikes and further unionization.

In the House, where 218 votes are necessary for passage, the bill already has 205 cosponsors. In the Senate, there are 31 cosponsors. The House is expected to pass the bill by summer. Its fate is less certain in the Senate, where it is viewed as a tough issue with little room for compromise, for Democrats and Republicans. The White House has indicated that the President will veto such a bill.