Newspaper article The Christian Science Monitor

Bush Reforms Would Mean Fewer Banks

Newspaper article The Christian Science Monitor

Bush Reforms Would Mean Fewer Banks

Article excerpt

A small thrift institution does business just down the street. A block away, a branch of the failed Bank of New England, now owned by the government, remains open. Several paces further, the Bank of Boston - New England's biggest bank - receives customers. A few other banks have branches within a five-minute walk.

That's an indication, in one city district, that the United States is, as many economists put it, "over-banked." Competition among banks and with other financial institutions is fierce. In the US, there are more than 13,000 commercial banks, several thousand thrift institutions, and tens of thousands of branches.

The Bush administration's banking reform proposals of this week, if approved by Congress, would rapidly reduce the number of banks and thrifts in the country.

"Reform is overdue," says Harry Guenther, a professor of banking and finance at Northern Michigan University.

The Bush proposals would stimulate banking consolidation by allowing banks to branch nationwide. The reform would also abolish the 1933 Glass-Steagall Act that prevents banks from entering the securities business. Well-capitalized banks would be permitted to affiliate with securities firms, insurance companies, and mutual funds under a new financial-services holding-company structure. These holding companies could be owned by nonfinancial corporations. But how far does the US want to go with banking consolidation?

By comparison, Canada has eight domestic banks nationwide and a single bank regulator. In Germany, three big banks dominate the financial scene - and in a way, the economy, since they own large chunks of stock of many large companies.

Professor Guenther, who in the late 1970s ran the Conference of State Bank Supervisors and in the early 1980s was president of a well-known bank consulting firm in Washington, Carter Golembe Associates Inc., would not want and does not expect to see the number of banks reduced to the Canadian-German levels.

Andrew Brimmer, a former Federal Reserve Board governor, agrees. Should Congress repeal the McFadden Act, which limits interstate banking, he foresees banks getting bigger. …

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