Magazine article American Banker

Banks Risk Being Outstripped by Software Firms, Ludwig Says

Magazine article American Banker

Banks Risk Being Outstripped by Software Firms, Ludwig Says

Article excerpt

Comptroller of the Currency Eugene A. Ludwig said Thursday that banks are in danger of being replaced by software providers as the primary point of customer contact.

In a wide-ranging interview, Mr. Ludwig recapped his agency's 1995 achievements and looked forward to issues that will occupy him this year.

By far, Mr. Ludwig's biggest concern is how the industry will be affected by technologies such as electronic money and computer banking.

"This is a freight train whose headlight we can see on the tracks coming down toward us," Mr. Ludwig said. "The banking industry is not where it should be on this issue. Banks should be developing financial software. After all, that is banking."

While worried about preserving a place for the banking industry, Mr. Ludwig said the government has no plan to rush in with regulations.

"Right now, in this country, there isn't such significant activity in this area that one has to rush out and put in a new regulatory structure," Mr. Ludwig said. "To do that could stifle a developing market that could produce great good for the country."

Mr. Ludwig also exhorted national banks to exploit the advantages of their charters.

For example, he pointed to a Supreme Court ruling last year that banks may sell annuities. That case pitted NationsBank Corp. against Variable Annuity Life Insurance Co., or Valic.

"In the area of competition, there are three things to say: Valic, Valic, Valic," Mr. Ludwig said. "I don't think bankers appreciate how very significant this is."

The Supreme Court gave the Office of the Comptroller of the Currency broad authority to permit activities not specifically mentioned in the National Bank Act. "And only when we are clearly unreasonable can the courts overturn it," Mr. Ludwig said.

Still, Mr. Ludwig said, few national banks are asking the agency to approve new products. …

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