Newspaper article THE JOURNAL RECORD

Economic Reports Point to Healthy Growth

Newspaper article THE JOURNAL RECORD

Economic Reports Point to Healthy Growth

Article excerpt

WASHINGTON (AP) _ Relaxing interstate banking restrictions could create an industry more able to withstand regional slumps but domination by big banks could threaten the availability of credit, a congressional study concluded Tuesday.

The General Accounting Office said that only the strongest banks should be allowed to operate interstate and antitrust enforcement should be stepped up to ensure the industry remains competitive.

The agency, which did the 212-page study at the request of Sen. Donald W. Riegle, D-Mich., chairman of the Senate Banking Committee, was generally favorable toward interstate banking.

But the GAO warned that "problems can arise if banks are not well-managed and well-regulated . . . or credit availability is reduced to those bank customers whose borrowing needs are not easily met elsewhere."

"The best way to minimize the risks to the quality and availability of banking services is to ensure that (individual metropolitan area) markets remain competitive through vigilant antitrust enforcement," the report said.

It also said regulations designed to make sure banks lend in poor neighborhoods should be adjusted to reflect the rise of nationwide banking.

On the plus side, interstate banking could make banks less susceptible to failure by allowing them to more easily spread their loans across more regions, said the GAO, the congressional watchdog agency.

On the other hand, the soundness of a large bank is more critical than of a small bank because a failure of a single large institution can seriously hurt local economies and the taxpayer-backed Federal Deposit Insurance Corp.

"The risk of such harm would be minimized if interstate expansion is restricted to well-capitalized and well-managed banks," the GAO said.

Currently all states but Hawaii permit interstate banking with varying degrees of restrictions. …

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