The banking world of tomorrow is going to be one vast national forest where some big lenders will range at will across state borders, chewing up local competitors, while others aggressively defend their turf.
And like speedy ferrets, hundreds of the leanest independent banks will continue to thrive--on the lookout, as always, for entrepreneurs who want to do lunch and arrange a quick line of credit.
This is what the financial landscape should look like in 1997, when the last barriers to interstate banking are likely to fall, flattened by the growth of big banking empires, modern computer communications and the diminished political clout of small banks.
The revolution will be completed by a historic piece of legislation virtually certain to be approved by Congress later this year as it rushes to catch up with the modern realities of the financial world and to put an end to a piecemeal system more suited to a time without interstate highways, computers or automatic teller machines.
What happens on Capitol Hill is often an "earthquake phenomenon," explained Washington banking consultant Edward Furash. "For a long time nothing seems to be happening, and suddenly something does. Then people understand there were tremors building up for a long time."
Indeed, banking has changed more in the past 15 years than at any time since the Depression: Mega-banks sprang up and moved across state lines, while about 2,700 banks and thrifts disappeared.
Consolidating those trends, the interstate banking bill--which awaits the approval of a House-Senate conference committee and would be implemented in phases within three years--promises common-sense conveniences and alluring new business opportunities for consumers and lenders alike.
* Customers will be able to do business with their bank across state lines--making deposits, writing checks and borrowing money without regard to borders. They shouldn't have to open a new account whenever they move to take a new job, go on a long vacation or buy a retirement home.
* All 50 states will be wide open for acquisitions. Any bank will be able to venture into a state to buy any other bank.
* Banks that already operate in more than one state--but with separate corporate structures in each and computers that can't communicate--will be able to convert all operations into branches of the parent bank. The industry savings could total in the billions of dollars.
In 1980, there were just 16 interstate bank holding companies, with just $85 billion in assets. In 1994, there are approximately 190 holding companies operating in multiple states, with an estimated $2.5 trillion in assets--about two-thirds of all commercial bank assets, according to James Barth, professor of finance at Auburn University.
Meanwhile, the assets held by independent banks shrank from $405 billion in 1980 to $215 billion last year.
A consolidation began in earnest during the early 1980s, when Congress allowed banks and thrifts to acquire failing financial institutions in other states. Healthy firms bought the industry casualties--with generous financial help from the federal deposit insurance funds.
In other cases, sound lenders eager to expand persuaded state legislatures to allow reciprocal entry with other states. The results were the so-called regional compacts, in which states opened their banking markets to their neighbors.
But the wave of consolidation, while it brought more total assets to the growing banks, did not make life easier for customers. While a banker's name and logo may have crossed state borders, convenience didn't travel with it.
There are, for example, 60 million Americans living and working in metropolitan areas that span state lines. These consumers are unable to follow their banks across the geographical boundaries for something so simple as making a deposit or cashing a check.
Thus Chase Manhattan customers who bank in Greenwich, Conn., but work in New York City cannot walk into Chase offices in New York to make their deposits, because the Chase banks in the two states are separate entities.
This system "doesn't make any sense," said Rep. Stephen L. Neal (D-N.C.), chairman of the financial institutions subcommittee of the House Banking Committee. "It would be as if Sears in each state had a separate board of directors, separate operating systems, separate computers and credit cards."
Each house of Congress has adopted its own version of legislation that would tear the barriers down. Once you had an account, it could go everywhere your bank operates.
"You can keep your same checking and savings accounts when you move from Bakersfield to Phoenix or Phoenix to Sacramento," said Luke Helms, vice chairman of BankAmerica, which is forced to run separate banking systems in 10 different states.
Once Congress acts, there should be no more angry customers like Debra Kilpatrick of Richmond, Va., who told a Senate hearing last year about a vacation gone awry because of the arcane rules that govern banking.
Kilpatrick said she didn't have time to deposit a mutual fund check at her local NationsBank branch in Virginia before heading south to North Carolina for a holiday. "Imagine my consternation," she told the lawmakers, "when the bank in North Carolina told me that because of interstate banking regulations, I was unable to deposit my check . . . in my own bank account because my account was a Virginia account and I was trying to deposit it in North Carolina."
It is anybody's guess which lenders will become the interstate aggressors when the barriers come down.
As many states began opening their doors over the last 15 years, the conventional wisdom was that a handful of gigantic money-center banks would be the ones to "watch and fear," Federal Reserve Board member Susan M. Phillips told a recent banking conference.
Instead, she noted, local banks grew into super-regionals and leapfrogged across the country. "Who expanded?" said Phillips. "It's been the banks from Charlotte, N.C.; Columbus, Ohio; Providence, R.I., and Minneapolis, Minn."
Phillips was referring to NationsBank Corp., Banc One Corp., Fleet Financial Group Inc. and Norwest Corp., each of which grew from a comparatively minor local bank into the ranks of the nation's 15 biggest bank holding companies.
These super-regional competitors might head right for California once the barriers are down completely, according to Julius Loeser, senior vice president for government relations at First Interstate Bancorp, the Los Angeles-based parent of a pioneer multi-state banking web.
"California is a very attractive market," Loeser said. "We have hundreds of small, inexpensive banks that could be bought fairly easily."
But California and the other Far Western states may prove a tough region for outsiders to penetrate.
"There are still some advantages to markets similar to the ones you operate in," said Fred Furlong, vice president for banking and regional studies at the Federal Reserve Bank of San Francisco. "Phoenix is more like Los Angeles than New York."
Three of the nation's top 15 bank holding companies are based in California--Bank of America Corp., First Interstate Bancorp, and Wells Fargo & Co.--and all three are concentrating on deepening and developing the markets where they already do business.
"Our plate is kind of full right now," said Bank of America's Helms. "We are in states with terrific growth opportunities"--among them California, Nevada, Washington and Texas. If somebody wants to grab a piece of Bank of America's business, he said, "they're going to have to work pretty hard to take it away from us."
At Chase Manhattan's headquarters in New York, the regional outlook is much the same. "We view ourselves as having a corridor of business running from Boston to the metropolitan Washington area," said John Hanley, vice president for government relations.
The pending legislation would not have been possible without the grudging acceptance of independent bankers, who traditionally have wielded substantial political power and long have feared the arrival of big rivals in their local communities.
The gradual opening of markets, combined with a new Democratic Administration in the White House, convinced them that sustaining their opposition would be futile.
"The fight has gone out of it at the state level," said Ken Guenther, executive director of the Independent Bankers Assn. of America. "If there are only 10 states that do not already have their doors open fully, that means you have only 20 senators to fight on your side. The rest don't care."
And, said Guenther, "President Clinton wanted the bill very strongly." Clinton, he noted, sat in the private box of Hugh McColl, hard-charging chairman of NationsBank, at the NCAA basketball championship this year in Charlotte.
McColl was an early and enthusiastic backer of Clinton's run for the presidency. For NationsBank, meanwhile, the consolidation of separate state units could mean savings of an estimated $50 million or more per year.
In backing interstate banking legislation, the White House insisted on a so-called "clean bill"--one stripped of many of the things that consumer groups wanted: special attention to the credit needs of poor and minority neighborhoods, for example, and assurances that banks wouldn't wipe out branches in all but the most affluent sections.
"We were steamrollered," said Michelle Meier, lobbyist for Consumers Union.
No matter how much the giant banks grow through interstate expansion, many independent bankers are confident they will keep their profitable niche of dealing with up-and-coming manufacturers, distributors and vendors, as well as wealthy professionals.
For these customers, the "personal financial situation is intertwined with their business," said George H. Benter Jr., president and chief operating officer of City National Bank in Beverly Hills. Such clients might need rapid approval for a loan to make a corporate acquisition or advice about some personal investments. Or they might just want to have lunch with the bank president to talk about where interest rates are going.
At another independent, Marathon National in Los Angeles, president Chip Morrow figures that "a boutique bank like ours serves 3% or 4% of the population--people who want individual service and the ability to talk to the president."
Morrow believes he can live peacefully in the new forest of banking, getting enough to eat without being trampled by the giants. And if one of the big companies makes him a financial offer he can't refuse--in the form of a generous proposal to buy the bank--that's not so bad, either.
"That's the nature of the beast," said Morrow. "Anyone running a business hopes one day to retire when someone offers a humongous amount of money to buy you out."
Over the last decade, the nation's biggest banking companies have broken free of the bonds that tied them to their home states, spreading across state borders even without congressional authorization of interstate banking. Of today's top 15 bank holding companies, ranked here by total assets, only two--Los Angeles-based First Interstate and Minneapolis-based Norwest--operated in more than one state in 1980. In 1994, only one--San Francisco-based Wells Fargo--limits its operations to a single state.
1. Citicorp: New York (Headquarters State)
Other Banking Operations: California, Nevada, South Dakota Florida, Delaware and Maine.
2. BankAmerica: California (Headquarters State)
Other Banking Operations: Alaska, Arizona, Idaho, New Mexico, Nevada, New York, Oregon, Texas and Washington.
3. NationsBank: North Carolina (Headquarters State)
Other Banking Operations: District of Columbia, Delaware, Florida, Georgia, Kentucky, Maryland, South Carolina, Tennessee, Texas, Virginia.
4. Chemical Banking Corp.: New York (Headquarters State)
Other Banking Operations: Delaware, New Jersey, Texas.
5. J.P. Morgan & Co.: New York (Headquarters State)
Other Banking Operations: Florida, Delaware.
6. Chase Manhattan: New York (Headquarters State)
Other Banking Operations: Arizona, Connecticut, Delaware, Florida, Maryland.
7. Bankers Trust NY Corp.: NY (Headquarters State)
Other Banking Operations: Delaware, Florida
8. Banc One Corp.: Ohio (Headquarters State)
Other Banking Operations: Arizona, California, Colorado, Illinois, Indiana, Kentucky, Michigan, Ohio, Oklahoma, Texas, Utah, Wisconsin, West Virginia.
9. First Union Corp.: NC (Headquarters State)
Other Banking Operations: District of Columbia, Florida, Georgia, Maryland, South Carolina, Tennessee, Virginia.
10. PNC Bank Corp.: Pennsylvania (Headquarters State)
Other Banking Operations: Delaware, Indiana, Kentucky, Massachusett, New Jersey, Ohio
11. First Chicago Corp.: Illinois (Headquarters State)
Other Banking Operations: Delaware, Wisconsin
12. Wells Fargo: California (Headquarters State)
13. First Interstate: California (Headquarters State)
Other Banking Operations: Alaska, Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Oregon, Texas, Utah, Washington, Wyoming
14. Norwest Corp.: Minnesota (Headquarters State)
Other Banking Operations: Arizona, Colorado, Iowa, Illinois, Indiana, Montana, North Dakota, Nebraska, Ohio, South Dakota, Wisconsin, Wyoming
15. Fleet Financial: Massachusett (Headquarters State)
Other Banking Operations: Connecticut, Florida, Maine, New Hampshire, New York, Rhode Island
Note: Data as of December, 1993.
Source: Furash & Co.
The March to Interstate Banking
The obstacles to bank expansion have fallen, bit by bit, over the past 70 years:
1927 McFadden Act: Allows nationally-chartered banks to branch within their communities, if state-chartered banks are allowed to have multiple branches. Banks barred from branching outside their home states.
1933 Banking Act: Allows federally-chartered banks to locate statewide in states where state-chartered banks are permitted to branch.
1975: First interstate banking law. Maine says a holding company based in another state can acquire a Maine bank, if that state allots similar privileges to Maine banks.
1982 Garn-St. Germain Act: Permits acquisition of a large, failing savings and loan association (with assets of $500 million or more) in one state by a bank from another state, regardless of state laws.
1983: First regional compact. New England states allow reciprocal interstate banking.
1985-1992: Wave of bank and thrift failures. Encouraged by federal regulators, healthy banks and thrifts spread across the country, acquiring ailing or insolvent institutions.
1994: House and Senate pass separate bills opening all states to interstate banking. Final version expected to be adopted and signed by President Clinton later this year.
Source: Furash & Co, Times staff reports