Continuing financial evolution has the industry reassessing the way it does business--prompting some to even question the worth of a banking charter
Call it the banker's answer to the seven-year itch. Call it bankers' mid-life crisis. Or just call it a day-dream for frustrated financiers. But nearly every senior banking executive has probably had at least one moment when he's had enough. Enough of bank examiners. Enough of laws and regulations that tie their hands.
Even bankers may find themselves wondering what having a bank charter allows a company to do that it couldn't do without one. Everybody from department stores to automakers can make consumer loans and offer credit cards; the largest government-guaranteed small-business lender is not a bank; and securitization has rewritten the rules on intermediation of funds. What exactly is unique to a bank charter? Less than you might imagine, as the table, opposite, shows.
But is this really enough to prompt bankers to chuck it all and compete without the banking mantle?
Debanking, or dropping the bank charter, is an extreme measure, still largely theoretical. But here and there are heard quiet acknowledgments that if banking comes u empty handed again regarding expanded powers legislation, or if new legislation has too many give-backs or restrictions, you might see a large bank make a major announcement regarding its charter.
Talk like this has been heard fore, of course, but usually amounted to little more than a threat, designed to nudge Washington.
Chase Manhattan did this in the mid '80s recall. Ultra-wholesale Bankers Trust also looked at the concept a few years back. A corporate spokesman now insists, however, that, "It's not something that we're considering at all."
But also consider the late 1993 bid by Wells Fargo to bypass a restrictive banking charter by converting to a thrift charter. That would-be bold stroke was stymied early on by regulators' harsh reaction.
There have been several debanking cases recently, however. A handful of small banks have dropped out of banking, two of which are described in the article immediately following this one. In late 1993, the Dutch-based banking company, ING, gave up its U.S. banking charter to pursue insurance business here. Other foreign banks are said to be seriously exploring similar moves. (National Westminster recently announced the sale of its retail banking operation to Fleet Bank.)
What about Washington?
Any discussion about the future of banking can't go far without assessing what's likely to happen in Washington. The fact is, banks and bank holding companies can engage in a wider range of business now than was possible 20 years ago. But a broad overhaul of bank-permissible activities has not materialized. Further, the industry continues to operate under a staggering load of rules and regulations that their nonbank competitors mostly escape.
Hope for Glass-Steagall reform continues strong, and some bankers see talk of debanking as a fantasy that will soon be forgotten when the congressional icejam breaks. "Something like House Banking Chairman Jim Leach's original bill [H.R. 2520] is inevitable," says Christopher R. Jennings, CEO at Dauphin Deposit Corp., Harrisburg, Pa. "When that happens, the issue of dropping the charter is going to go away."
Still, few would say unequivocably that a clean bill is a certainty this session. The question then becomes, how long can and will banks wait? Debanking, broadly defined, is a spectrum.
It ranges from actually dropping the charter to spinning off subsidiaries or dropping lines of business, to rethinking the role of the branch system. Each in its way is a breakaway strategy--breaking away from business as usual.
At the edge: dropping the charter
Ever since Theodore Levitt's "Marketing Myopia" first appeared, banks have been dogged with the image of an industry that was doomed to go the way of buggy-whip makers because it refused to recognize that its business was changing. …