Magazine article American Banker

What Does the Future Hold for the Thrift Industry?

Magazine article American Banker

What Does the Future Hold for the Thrift Industry?

Article excerpt

I was appointed director of the Office of Thrift Supervision just a few weeks ago. Since that time, I have found myself confronted in meeting after meeting with the question: What is the future of the thrift industry? To be honest, I simply do not know ye t. And I find that a number of the people I talk to do not yet know the answer either.

What I do know is that the nation's thrift industry is alive and well. The industry has recorded 20 consecutive profitable quarters, including record earnings of $3.7 billion in the first two quarters of 1996. Thrifts' equity capital of approximately 8% i s comparable to banks' capital, and other key measures also reflect the strong performance.

I believe that thrifts continue to play an important role as mortgage and community lenders. It is clear, however, that competition has intensified on both the asset and liability sides of their balance sheets. Nonbank lenders and government-sponsored enterprises have moved strategically into the residential mortgage market, and thrifts have lost market share. Thrifts, like banks, also have seen their deposit base erode as the inflow of money to mutual funds has boomed in the last several years.

I also know that Congress recently acted to benefit communities by enacting legislation to enhance the thrift charter so these institutions have more flexibility to better serve their community's credit needs.

More than 90% of all thrifts have assets of under $500 million, and nearly all of these are locally owned and managed. Their solid capital position, sound management, and strong regulatory oversight should enable thrift institutions to integrate these expanded powers into safe and sound community-focused business and consumer lending

Finally, I know that change, just for the sake of change, seldom produces a beneficial outcome.

As a result of deliberations in the last Congress, momentum is building to reform the bank and thrift charters. That is an important and significant goal.

But to do that right, we must look to answer the fundamental question of what does the future hold for both thrifts and banks. Wayne Gretzky, of hockey fame, has explained that the key to his success is the ability to skate to where the puck will be. Applying that analogy, financial services institutions must be able to anticipate the future needs of their customers and have the flexibility to meet the changing demands for financial services.

As regulators, we have a responsibility to remove barriers to prudent lending. Regulations must continue to be streamlined and allow for more lending flexibility. Modernization, however, is a much broader proposition than just streamlining regulations and expanding lending authority.

So I contend that as these deliberations unfold, all of us who will be participating - Congress, the administration, regulators, the industries, analysts, and others - should focus not only on issues related to the charters of insured depository institutions, but also on the dynamics of change in the broader financial services industry. …

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