Banking Industry's Not-So-Secret Weapon in War with Nonbanks

By Seiberg, Jaret | American Banker, May 12, 1997 | Go to article overview

Banking Industry's Not-So-Secret Weapon in War with Nonbanks


Seiberg, Jaret, American Banker


By the end of the millennium, one fundamental thing will let banks dominate securities firms and insurance companies.

Capital.

"Capital determines who survives in the long term," NationsBank Corp. vice chairman James H. Hance Jr. said last week.

Speaking to the Bank Administration Institute's annual compliance and auditing conference, Mr. Hance said the banking industry's reserves confer an advantage in investing in technology and acquiring competitors.

According to the Federal Deposit Insurance Corp., commercial banks had $375.3 billion in equity capital at the end of 1996. Separately, a banking organization studying the issue, which requested its name not be disclosed, compiled data on the capital strength of the eight largest competitors in several financial services fields.

The analysis showed the eight largest banks had $116 billion in capital, dwarfing the $30 billion of the top eight securities firms. The eight largest life insurers hold $27 billion, the top property-and-casualty insurers $86 billion. An official at the organization doing the study said the banking industry's advantage widens when the list is expanded beyond eight firms.

"This is a defining advantage for banks," Mr. Hance said.

Most of the walls separating the three industries will be gone in a few years, he predicted. Already, regulators have torn down most of the Glass-Steagall Act barriers to bank securities operations while the courts have freed banks to enter the insurance business.

Congress has permitted banks, like securities and insurance companies, to operate nationwide. Lawmakers are currently debating sweeping financial reform, which could permit banks to affiliate with nonfinancial companies.

"We stand to gain more in this last decade than in the past nine decades of this century," Mr.

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Banking Industry's Not-So-Secret Weapon in War with Nonbanks
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