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THE CH ALLEN G ES AND CHANGES CONFRONTING A L A B A M A BANKERS An A d d re s s by M on roe K im b re l, P r e s id e n t F e d e r a l R e s e r v e Bank o f Atlanta at the 80th Annual Convention o f the A labam a B ankers A s s o c ia t io n M ay 2 -6 , 1973 Southam pton P r in c e s s H otel, B erm u da The C hallenges and Changes C onfronting A labam a B ankers B an kers fa c e ch a llen g es today that, in one f o r m o r an oth er, w ill lik e ly co n fro n t ea ch o f ns h e r e and w ill r e q u ir e that we m ake m a jo r a d ju stm en ts in our cu rre n t a p p ro a ch to banking. A s a r e s u lt, it is im p orta n t that w e a n ticip a te and u n derstand the changes that a r e co m in g so w e can a ct to m in im iz e d isru p tion s in our b u s in e s s e s . F oreth ou gh t w ill a llo w tim e to m ake o r d e r ly plans and to sm o o th ly im p lem en t them . C o n sid e rin g the fu tu re, a re a so n a b le a s s e s s m e n t o f changes lo o m in g on the banking h o r iz o n su g g ests that the b u sin e ss is going to take on a new lo o k . Even a b r ie f ca ta log of co m in g changes w h ich w ill p r e s e n t stron g ch a llen g es fo r banking should in clu d e the fo llo w in g : 1. The m o d ifica tio n s in bank stru ctu re stem m in g fr o m the h olding com p an y m ov em en t; 2. The m o d ifica tio n s in the fu ll ran ge o f banking s e r v ic e s to u pgrade and expand them , w h ile at the sa m e tim e m aking the s e r v ic e s m o r e con ven ien t to the p u b lic; 3. The in c r e a s e in co m p e titio n fr o m nonbank fin a n cia l institutions and a c o r r e s p o n d in g sh ift by the banking in d u stry into new banking and nonbanking a c t iv it ie s ; and 4. The in c r e a s e in re g u la tio n o f fin a n cia l tra n sa ctio n s in v olv in g co n s u m e rs and re la te d fin a n cia l a c tiv itie s thought to a ffe c t the p u b lic in te re s t. A s tra u m a tic as th ese changes m igh t a pp ea r at f ir s t g la n ce , b e s t to v ie w th em in a r e a lis t ic and p r o p e r p e r s p e c t iv e . F ir s t, it se e m s m ost of th ese changes a r e going to e v o lv e s lo w ly o v e r the co m in g y e a r s ; they w ill 2not a ll be suddenly con fron tin g us upon ou r a r r iv a l h om e. be help ed , I a m su r e , N ext, you w ould by m e a su rin g th eir p oten tia l im p a ct a g a in st so m e o f the ch a llen g es you have s u c c e s s fu lly a b s o r b e d in ju s t the p a s t ten o r fifte e n years. A m o m e n t's r e fle c t io n on th ese p a st ch a llen g es and y o u r r e s p o n s e s to them sh ou ld b e r e a s s u r in g , fo r m any o f the p a st changes a ls o se e m e d tra u m a tic at f ir s t . B ankers Have R esp on d ed to C hallenges ____________ In R e ce n t Y e a rs _______________ L e t us lo o k b r ie fly to g e th e r at y o u r r e s p o n s e to p a st re q u ir e m e n ts , ty p ica lly with c o n s id e r a b le talent and a b ility . C erta in ly , a r e c e n t ch a llen g e that undoubtedly taxed y o u r p oten tia l f o r re s p o n s e was the stron g dem and fo r c r e d it p la c e d on b a n k ers in the S ixties and e a rly S e v e n tie s, co m p etition fo r co n s u m e r, who m ean w h ile had to stru g g le with in c r e a s in g b u s in e s s , and g ov ern m en ta l d e p o sits and the r is in g in te r e s t ra te s th e se con d ition s b rou gh t fo rth . bank c r e d it in A la b a m a , w h ile 240 p e r c e n t, in c r e a s in g n e a r ly $4 b illio n in v olu m e o r by changed its type and c h a r a c te r d r a m a tic a lly to m e e t new needs of b orrow ers. len d in g. D uring th ose y e a r s , C on su m er in sta lm en t lending m o v e d to the fo r e fr o n t in bank L oan s to c o m m e r c ia l and in d u stria l fir m s a ls o r o s e stro n g ly , did v a rio u s types o f r e a l esta te m o rtg a g e lo a n s . la r g e v olu m es o f s e c u r it ie s , p u rch a s e s during the S ix tie s. m a in ly o f U. S. but, h e re to o , as B ankers continued to buy th e re was a d e cid e d sh ift in No lo n g e r do A la ba m a bank p o r t fo lio s c o n s is t T r e a s u r y o b lig a tio n s. In la r g e d e g r e e , ban kers now p u rch a se state and lo c a l g ov ern m en t ob lig a tion s fo r th:eir t a x -e x e m p t fe a tu re s and U. S. 3 a g e n cy ob lig a tion s fo r th eir h ig h er y ie ld s . T o m e e t new c r e d it n eeds and expand the v o lu m e o f c r e d it g r a n t e d , b an k ers m ade a m a jo r shift in the types o f d e p o sits they sought. tota l d e p o sits in c r e a s e d slig h tly m o r e than 200 p e r c e n t s in c e I960, d e p o s its , fo r m e r ly bankers m a jo r s o u r c e o f funds, p e r c e n t. W hile dem and adva n ced on ly about 100 The la r g e s t gains ca m e fr o m tim e and sa vin gs d e p o sits w hich g re w by 450 p e r c e n t ! This la r g e gain re s u lte d fr o m b a n k e r s 1 a g g r e s s iv e m a rk etin g o f co n s u m e r C D 's, in te re s t c o s ts f o r banks. and in turn b rou gh t substantial in c r e a s e s in H ow ev er, tim e d e p o sit grow th did s e r v e to lengthen the m a tu rity o f d e p o sits and in this con n ection m a y have en co u ra g e d a r e a lign m en t in the types o f c r e d it extended by banks. T h e re is a stron g s im ila r it y betw een types of loan s that banks a re w illin g to m ake and types o f d e p o sits they h old . With a lo n g e r -d e p o s it m a tu rity, m any banks have been w illin g to extend r e a l estate loa n s fo r lo n g e r m a tu ritie s and m ake m o r e t e r m loan s to b u s in e s s e s . H o w e v e r, in c r e a s e d in te r e s t c o s ts have a ls o s p u rre d b a n k ers to w o rk th e ir a s s e ts harder, a n d this cou ld a cco u n t fo r b a n k ers' attem pts to in c r e a s e y ie ld s o f th e ir in v estm en t p o r t fo lio by p u rch a sin g m o r e m u n icip a ls and a g e n cy is s u e s in the p a st d e ca d e . A ls o , s in c e I9 6 0 , th ere has been a s ig n ifica n t change in banking o ffic e s in A la ba m a as new banks w e r e ch a r te r e d and add ition a l b ra n ch e s esta b lish e d . The nu m ber o f new banks c h a r te r e d w as r e la t iv e ly sm a ll, 35, thus b rin g in g the total n u m b er o f A labam a banks to 273. H o w e v e r, only the n u m b er o f b ra n ch es r o s e d ra m a tica lly , fr o m 90 in I960 to 317 by la s t y e a r, with m u ch o f this in c r e a s e o c c u r r in g in the r e c e n t y e a r s . The num ber o f 4 B ra n ch o ffic e s now e x ce e d s the nu m ber o f banks, w h erea s in I960 th ere w e r e o v e r two and o n e -h a lf banks fo r e v e r y b ra n ch o ffic e . N ew banking fa c ilit ie s g re w m o s t d r a m a tic a lly in th o se a re a s w h ere popu lation w as r is in g m o s t ra p id ly , con v en ien t to the p u b lic. thus helping to m ake banking m o r e T o a s s e s s the m agnitude o f this d evelop m en t, that the n u m b er o f banking o ffic e s in A labam a r o s e f r o m note 10 p e r 100, 000 p e r s o n s in I960 to the cu rre n t le v e l o f about 16 p e r 1 0 0 ,0 0 0 p e r s o n s . T his ra tio p la c e s the state m uch c lo s e r to the national le v e l. P erh ap s the m o s t fa r -r e a c h in g in stitu tion al change in A labam a banking in r e c e n t y e a r s was the c o n v e r s io n fr o m nonpar to p a r banking. W hile the n u m ber o f non par banks was c le a r ly d e clin in g p r io r to le g is la t iv e a ction on p ar c le a r a n c e in 1971, fin a l fig u r e s show that about 60 banks w e r e c o n v e rte d fr o m non par to p a r statu s. co r r e s p o n d e n t bank In d ire ctly , this ca u se d changes in re la tio n sh ip s and in the m an n er that ch eck s w e r e c le a r e d , both in A labam a and ou tsid e the state. fo r the banking in d u stry in A la ba m a . T his change a lon e w as m o s t im p orta n t It r e fle c t s w e ll on A labam a b a n k e rs, it c le a r ly b rou g h t state banking p r a c t ic e s in lin e with m o d e rn ch e ck paym en t standards fo llo w e d in m o s t oth er sta te s. F in a lly , in the p a st ten y e a rs you have gained e x p e r ie n c e in handling p r o b le m s w h ich a r is e during p e r io d s o f c r e d it r e s t r ic t io n and lo s s o r d i s in term ed ia tion o f d e p o s its . In m e e tin g loa n r e q u e s ts , you found that it was no lo n g e r enough to re d u ce h old in gs in you r s e c u r it y p o r t fo lio s . v e lo p e d new lia b ilit y m an agem en t tech n iqu es t im e s , Y ou d e to m e e t the new situ ation . At in te r e s t ra te c e ilin g s r e s u lte d in a sh ift o f d e p o sits f r o m y ou r banks to nonbank fin a n cia l institution s and open m a rk e t fin a n cia l in stru m e n ts. Y ou fo r 5 te m p e r e d so m e o f th e se outflow s o f d e p o sits by payin g h ig h er ra te s and o ffe rin g the new lo n g e r m a tu rity tim e d e p o s its . d en om in ation C D 's to b u sin e ss f ir m s , sh o rt, Y ou b e c a m e u se d to o ffe r in g la r g e and state and lo c a l g o v e rn m e n ts. In you d e v e lo p e d n ew ways o f a cq u irin g funds that enabled you to continue m eetin g so m e o f the m o r e u rgen t and n e c e s s a r y re q u e sts fo r loa n s fo r c o n s u m e r s , b u s in e s s e s , and lo c a l gov ern m en ts at a tim e when c r e d it w as g e n e ra lly r e s t r ic t iv e . A ll o f th e se m a jo r changes I have ju st re co u n te d d ra m a tica lly a ffe cte d the ways b an k ers con d u ct th e ir b u s in e s s e s . quite e ffe c t iv e ly . B an kers re sp o n d e d to th o se changes Thus I can say that any grou p o f b u sin e ssm e n exhibiting the n e c e s s a r y talent to deal s u c c e s s fu lly with such m a jo r changes w h ile a ls o in c r e a s in g th e ir o v e r - a l l p r o fita b ility s u r e ly can re sp o n d s u c c e s s fu lly to the ch a llen g es now ahead. S ig n ifica n t New C hallenges L o o m A head F r o m this p o s itio n o f stren gth , co n s tr u ctiv e lig h t. we can v ie w the ch a llen g es ahead in a W e shou ld note that m any a p p aren t ch a llen g es fo r the fu tu re r e p r e s e n t step s that A labam a ba n k ers w ill con tem p la te fo r fu rth er adapting to p a st ch a n ges. P r e s e n t ch a llen g es v ie w e d in this p o s itiv e con tex t p ro v id e b ea con s fo r b e tte r cop in g w ith the p r o b le m s o f today. In A labam a and e ls e w h e re , com p e titio n . the banking in d u stry is b ein g p r e s s e d by It is in c r e a s in g ly turning to the bank holding com p an y as a fle x ib le type of c o r p o r a te s tru ctu re that m ight enable banks to be m o r e co m p e titiv e and a llo w fo r e a s ie r expan sion into new m a rk e ts . Bank holding com p a n ies m ay a ls o p ro v id e an in c r e a s e in the ra n ge of banking and nonbank ing s e r v ic e s a v a ila b le to the p u b lic, and p o s s ib ly an im p r o v e m e n t in them . 6 A lthough we m igh t not alw ays a g r e e with the p a r tic u la r v e h ic le ch o se n by m any banks, s tru c tu re , th e re eviden tly a re advantages to the bank h oldin g com p an y o r a g re a t m any b an k ers a r e w ro n g in th eir p la n s. I shou ld lik e to exam in e fu rth er how the bank h oldin g com p an y m ight be the fo r m o f c o r p o r a t e o rg a n iza tio n that cou ld enable A labam a b a n k ers to m e e t p r e s e n t ch a llen g es and b e tte r co p e with d ifficu ltie s o f the day. c la r ify what I con n ote b y the te r m ’ ’bank org a n iza tio n . " L et me holding com p an y fo r m o f c o r p o r a te We should lo o k at the m eaning to a v o id b r is tlin g at even the m en tion o f the w o rd "h old in g com p an y, " thus c lo s in g ou r m inds to co n s id e ra tio n o f its advantages. The te r m "bank h oldin g co m p a n y " n eed not stand fo r o r m ean the dom in ation o f s m a ll banks by a la r g e le a d bank, w h ich is the c r i t ic is m o f bank holding com p a n ies that I m o s t often h e a r. T ru e , the bank holding com p an y fo r m m ay in v o lv e only one bank o r it m ay in v o lv e s e v e r a l banks. But the h old in g com p an y org a n iza tio n , fo r a bank o r s e v e r a l banks, p e r s e , can be a u se fu l s tru ctu re ju s t as the c o r p o r a te f o r m o f o rg a n iza tio n is b e tte r su ited fo r so m e b u s in e s s e s than p r o p r ie to r s h ip s o r p a r tn e rs h ip s . It se e m s to m e that an e n cou ra g in g tren d is now d evelop in g in A labam a w h ere s e v e r a l h oldin g com p a n ies a r e bein g fo r m e d by m ed iu m and s m a lls iz e d banks. A s I v ie w th ese c a s e s , no one bank w ill dom in ate the o r g a n i za tion and a ll p a rticip a tin g banks can sh a re its a dva n ta ges. N either does it fo llo w that holding com p an y banks m u st dom in ate lo c a l banking m a rk e ts . A ll a cq u isitio n s by h old in g com p a n ies r e c e iv e F e d e r a l R e s e r v e a p p ro v a l and a re s u b je c t to the sa m e a n titru st law s as any oth er b u s in e s s . h ow ev er, It is p o s s ib le , that the h oldin g com p an y in flu en ce w ou ld b e n e fit lo c a l banking 7 m a rk ets by o ffe r in g cu s to m e rs o f banks new and b e tte r s e r v ic e s . resp ect, In this ban kers w o u ld m o r e fu lly m e e t the o b lig a tio n they a ssu m e d when they w e r e given a bank c h a r t e r - - t o o ffe r new and b e tte r s e r v ic e s to the p u b lic. T h e re a r e so m e s p e c ific w ays in w h ich a holding com p an y can a id a bank. A s I have noted, A labam a banks g re w in the p a st th irte e n y e a rs both in d e p osit s iz e and in the n u m b er o f new banks and banking o f f ic e s . In the p r o c e s s , the banking in d u stry r e q u ir e d c o n s id e r a b le new ca p ita l funds. B ased upon two m a jo r d eterm in an ts o f bank g r o w t h --p e r s o n a l in c o m e and p o p u la tio n --th e fu tu re is lik e ly to r e q u ir e even m o r e ca p ita l in v estm en t than the $360 m illio n in c r e a s e in ca p ita l o f A la ba m a banks s in ce I960. E stim a tes sh ow that p e r s o n a l in co m e shou ld g row n e a rly 40 p e r c e n t during this d eca d e and 50 p e r c e n t in the n ext d eca d e. In addition , the p opu lation o f Alabam a is p r o je c t e d to expand a lm o s t 11 p e r c e n t in ea ch o f the next ten y e a r s . This a lm o s t guarantees g row th in A la ba m a b a n k s -- a grow th re q u ir in g c o n s id e r a b le a d d ition al ca p ita l funds to e n la rg e e x istin g banks and to ch a rte r new banks. B e ca u se a m ultibank holding com p an y is apt to have la r g e r e s o u r c e s and be fin a n c ia lly s tr o n g e r and b e tte r known than m any o f A la b a m a 's s m a lle r banks, it should be b e tte r a b le to a ttra ct ca p ita l funds. A h olding com p an y m ay by its s c o p e and s iz e en joy a high c r e d it ra tin g, enabling it to a c q u ir e ca p ita l funds m o r e re a d ily fr o m a ran ge o f in v e s to r s than m igh t be the c a s e with a s m a lle r bank. The w id e r c h o ic e o f fin a n cia l in stru m en ts a v a ila b le to the holding com pan y cou ld re d u ce c a p ita l c o s ts and a llo w the p aren t o rg a n iz a tio n to stren gth en the ca p ita l p o s itio n of its a ffilia te banks. U pgrading a n d & p a n d in g the tra d itio n a l ran ge o f banking s e r v ic e s w ill r e q u ir e not on ly a d d ition al ca p ita l in v estm en t but a ls o in v estm en t in new 8 p e rs o n n e l and tra in in g. The d ifficu lty o f a ttra ctin g and holding ca p ab le e m p lo y e e s fo r th e ir o ffic e r ranks is one a re a o f d e fic ie n c y in bank m anagem ent that bankers th e m s e lv e s p oin t out in a p p lica tio n s fo r a holding com p an y a cq u is itio n . P re su m a b ly , a holding com pan y can o ffe r a co m p e titiv e s a la ry and u p -t o -d a t e frin g e b e n e fits , thus g re a tly re d u cin g the sta ffin g p r o b le m s of its banks. T rain in g c o s ts shou ld a ls o b e re d u ce d and the quality o f tra in in g im p r o v e d as the holding com p an y is a b le to ce n tr a liz e tra in in g o p e ra tio n s and m in im iz e p e rs o n n e l tu rn o v e r. O ther ob viou s p e rs o n n e l advantages should a ls o a c c r u e to the a ffilia te d b a n k s --s u c h as d ev elop in g and sh a rin g highly s p e c ia liz e d s e r v ic e s and p e rs o n n e l not n eed ed fu ll tim e by any bank. Som e o f th ese s p e c ia liz e d s e r v ic e s m ay im p r o v e the in tern al op era tion s o f the a ffilia te d banks, e s p e c ia lly in the fu n ction s o f data p r o c e s s in g , auditing, a ccou n tin g , and c r e d it a n a ly s is , a d v e rtis in g and m a rk etin g p r o g r a m s . and in O ther p r o g r a m s w h ich o ffe r op p ortu n ities f o r the a ffilia te d banks to extend new and im p r o v e d s e r v ic e s e n co m p a ss expanded m ortgage len d in g, data c r e d it, p r o c e s s in g s e r v ic e s , tru st and in v estm en t s e r v ic e s , in su ra n ce s e r v ic e s . le a s in g , a g r ic u ltu r a l and fo r e s t r y in tern ation al banking s e r v ic e s , and certa in The e co n o m ie s and b en efits f r o m having a sta ff o f " in -h o u s e " s p e c ia lis t s d oes s e e m to p r o m is e c o n s id e r a b le b en efits to both the banks and the banking p u b lic. Hunt C o m m is s io n R e co m m e n d a tio n s _______ An In d ica tor o f Change_______ If the re co m m e n d a tio n s o f the Hunt C o m m is s io n a r e any in d ica tio n o f the d ir e c tio n in w h ich le g is la tio n in volvin g fin a n cia l in stitu tion s w ill be m ovin g, we m ay w e ll ex p e ct in c r e a s e d co m p e titio n betw een banks and nonbank fin a n cia l 9 in stitu tion s as the reg u la tion s applying to ea ch grou p a r e e q u a lized . The m a jo r co m p e titiv e p r e s s u r e s con fron tin g A labam a b an k ers in the co m in g y e a r s a r e not apt to be fr o m oth er A labam a b a n k e rs. The m a jo r co m p e titio n cou ld w e ll co m e f r o m oth er b an k ers ou tsid e the state and oth er fin a n cia l in stitu tion s in the state, s o m e o f w h ich m ay be s u b s id ia rie s o f o u t -o f-s t a t e bank holding co m p a n ie s. Y ou can s e e signs o f this tren d a lre a d y . C o m m e r c ia l banks in C on n ecticu t and M a ssa ch u setts a r e not n e a rly as ch a lle n g e d by oth er c o m m e r c ia l banks as they a r e by the g e n e ra lly c o n s e rv a tiv e sa vin gs banks. began o ffe r in g NOW a cco u n ts , a cco u n ts . T h e se savin gs banks suddenly w h ich a r e , in e ffe c t, in te r e s t-p a y in g dem and d e p osit In A la b a m a , the F ir s t N ational Bank o f B oston is a lre a d y r e p re s e n te d in the A labam a m o rtg a g e loa n m a rk e t through its lo c a l a ffilia te , C obb s, A lle n , and H all. The p o s s ib le avenues f o r en try into the A labam a banking m a rk e ts a r e n u m erou s. Who can say, fo r e x a m p le, that an o u t -o f-s t a t e bank w ill not se e k to en ter the m a rk e t fo r in tern ation al banking s e r v ic e s by e sta b lish in g an Edge A c t su b s id ia ry in M o b ile ? A nd ju s t la s t m onth, the F e d e r a l H om e L oan Bank B o a rd instituted changes that b ro a d e n e d the lending p o w e rs o f savin gs and loa n a s s o c ia tio n s to m ake loan s ou tsid e th e ir lo c a l g e o g ra p h ic m a rk e ts. P erh a p s b a n k ers can b etter m e e t su ch co m p e titiv e th ru sts through the holding com p an y s tr u c tu r e . By p la cin g so m e nonbank a c tiv itie s into s u b s id ia r ie s , a holding com p an y m ay b e tte r m e e t the co m p e titio n in its " h o m e " m a rk et, and in lo c a le s that it w ou ld not be f r e e to enter op era tin g s o le ly as a bank. Sub s id ia r ie s o f bank h oldin g com p a n ies m a y le g a lly e s ta b lis h o ffic e s and p ro v id e s e r v ic e s in a re a s b ey on d the state b ra n ch in g lim its o f banks. the fie ld s o f m o rtg a g e fin a n ce , co n s u m e r fin a n ce , S e r v ic e s in data p r o c e s s in g , and tru st in vestm en ts stand out as ex a m p les o f types w h ich h oldin g com p an y su b s id ia rie s 10 a r e p ro v id in g in n u m erou s p la c e s in th e ir h om e state and even in oth er sta tes. We shou ld o b s e r v e too that the m ultibank h old in g com pan y can a llo w in dividu al banks in its o rg a n iz a tio n to b e tte r handle la r g e o r u n ex p ected r e q u ests fo r c r e d it. When s m a lle r banks in the h oldin g com p an y a r e lim ite d in th eir a b ility to extend c r e d it to lo c a l c u s to m e r s , ticip a te in the lo a n s. A ls o , a ffilia te banks can p a r if dem ands fo r c r e d it a r e s tro n g e r in so m e lo c a le s w h ere the o rg a n iza tio n is r e p re s e n te d , p a rticip a tio n s w ithin the grou p o f banks can help b a la n ce the loa n p o r t fo lio o f a ll o f them . H olding com p an y a ffilia tio n n eed not r e s u lt in lo c a l cu s to m e rs o f banks in the s m a lle r com m u n ities b ein g den ied a c c e s s to c r e d it, T y p ica lly , as is often su g g ested . w e fin d that the s m a lle r banks seek in g h oldin g com p an y a ffilia tio n have the m a jo r ity o f th eir earnin g a s s e ts not in loa n s but in U. S. and state and lo c a l g ov ern m en t s e c u r it ie s . A ls o , G overn m en t th e se sa m e banks m ay be s e llin g th eir e x c e s s r e s e r v e s in the F e d e r a l Funds m a rk e t. Thus, even if s o m e lo c a l banks a ffilia te d with a h olding com p an y b e c o m e net p u r c h a s e r s o f loa n p a rticip a tio n s f r o m other a ffilia te d banks, w e cannot a u to m a tica lly con clu d e that fe w e r c r e d it re q u e sts a r e b ein g a c c e p te d in lo c a l p la c e s . The C hallenge o f S o c ia l R e s p o n s ib ility I shou ld lik e n ow to c o n s id e r a rem a in in g c h a lle n g e - -r e a lly a s e r ie s of ch a llen g es - -th at w ill lik e ly b e c o m e an in c r e a s in g ly im p orta n t c o n c e r n to bankers in com in g y e a r s . B an kers a r e ju s t now beginning to fe e l the brun t o f a m o v e m en t w h ich m aintains that b u s in e s s e s in g e n e ra l, and the banking in d u stry in p a r tic u la r , m ust a c c e p t g re a te r r e s p o n s ib ility co u n tr y 's s o c ia l p r o b le m s , in w ork in g h o w e v e r they be d efin ed . to r e s o lv e B ankers the a r e apt to 11 be h eld to a g re a te r a cco u n ta b ility fo r th e ir a ctio n s o r in a ction s than they have in the p a st. the p a st, T hey m a y fin d that what is " le g a l, " o r what was done in m ay not be c o n s id e r e d "rig h t, " standards o f b u sin e ss b e h a v io r. " fa ir , " o r "a c c e p ta b le , " by new Our in d u stry is p a r tic u la r ly v u ln e ra b le to th e se ch a rg e s b e ca u s e banking is e s s e n tia lly a b u sin e ss o f p u b lic tru st. The tru th -in -le n d in g reg u la tion s a p p lie d to c r e d it tra n sa ctio n s in the la te S ixties g re w out o f a r e a c tio n to a lle g e d c r e d it a b u ses that had co m e to lig h t. A ls o , the fa ir c r e d it re p o rtin g re q u ire m e n ts r e f le c t a b e lie f that the co n s u m e r op e ra te s at a c o n s id e r a b le disadvantage in so m e o f his c r e d it tra n sa ctio n s with fin a n cia l in stitu tion s. P erh a p s the m o s t p o te n tia lly s e r io u s p r o p o s a l bein g m en tion ed in v o lv e s p la cin g o f lim its on "th e h o ld e r in -d u e -c o u r s e d o c t r in e " in con n e ctio n with co n s u m e r c r e d it. B an kers co u ld then b e c o m e r e s p o n s ib le fo r goods s o ld through the d e a le r p a p e r they buy and through p u rch a s e s m ade with th eir own c r e d it card s. T his m ay s e e m an e x tre m e a ctio n , but it is c e rta in ly a d istin ct p o s s ib ilit y in so m e f o r m o r oth er in the n ea r fu tu re. We have a ls o se e n a d v o ca te s o f h ou sin g, g ov ern m en ts, co n s u m e r in te r e s ts , m u n icip a l and s m a ll b u s in e s s e s b e c o m e v o c a l in try in g to p re v e n t th eir s e c t o r s fr o m b ein g shut out o f the c r e d it m a rk e t in fa v o r o f la r g e r c o r p o r a tion s in p e r io d s o f c r e d it re s tr a in t. Many banks, to th ese lo c a l in te re s ts during such p e r io d s , co m p la in ts. of cou rse, continue to lend but this has not d im in ish e d the When th e re is a c r e d it sh o rta g e and c r e d it m u st be ra tion ed , th ose lo c a l in te re s ts that do not get a ll the c r e d it that they want at the ra tes they d e s ir e fe e l that p erh a p s b ig b u s in e s s e s should not be getting any c r e d it at a ll. This is c e rta in ly a d iffic u lt p r o b le m fo r b an k ers to r e s o lv e and one 12 that is even n ow cro p p in g up in a slig h tly d iffe re n t fo r m . The C om m ittee on In terest and D ividends is e x e rtin g p a r tic u la r p r e s s u r e on banks to lim it in c r e a s e s in lending ra te s on loans to sm a ll b u sin e ss and fa r m e r s in o r d e r to p r o t e c t th em a g a in st b u rd e n so m e in c r e a s e s in b o rro w in g c o s t s . B a n k ers, as w e ll as oth er b u sin e ssm e n , em p loy m en t p r a c t ic e s and p e rs o n n e l p o lic ie s . a r e b ein g q u estion ed about T h o se w ork in g d ir e c t ly in the ca u se o f equal em p loy m en t op p ortu n ities f o r r a c ia l m in o r itie s and w om en m aintain that the banking in d u stry need s to do m o r e to h ir e and p ro m o te th ose d is c r im in a te d a g a in st in the p a st. to s o m e o f th ese ch a r g e s , B an kers a r e p a r tic u la r ly v u ln e ra b le sim p ly b e ca u se m any o f th e ir lo w e r -p a id e m p lo y e e s a r e w om en and r a c ia l m in o r itie s and fe w have b e c o m e bank o f f ic e r s with m ean in gfu l p o s itio n s o f r e s p o n s ib ility . N or a r e b a n k e r s ' tru st d epartm en ts apt to b e exem pt f r o m s o c ia l c r i t ic is m s . Many c r it ic s now c la im that in v estm en ts m ade by tru st d e p a r t m ents shou ld only be in " s o c ia lly r e s p o n s ib le " co m p a n ie s, o r that sh a res o f s to ck in com p a n ies not " s o c ia lly r e s p o n s ib le " shou ld b e v o te d by the bank to p r e s s th em into g re a te r s o c ia l r e s p o n s ib ilit y . M any o f th ese c r it ic s fa il to co n s id e r how a ll this fits in w ith the b a n k 's fid u c ia r y r e s p o n s ib ility to the tru st b e n e fic ia r ie s , N e v e r th e le s s , but this se e m s to be only o f slig h t c o n c e r n to them . b a n k e rs, b e ca u se they c o n tr o l la r g e am ounts o f a s s e ts and m ake in vestm en ts in the n a tio n 's m a jo r co m p a n ie s, do re m a in v u ln e ra b le to ch a rg e s that they shou ld r e a lly do m o r e to s o lv e s o c ia l p r o b le m s . R e g a r d le s s o f our p e r s o n a l in clin a tio n s, m any s o c ia l a c tiv is ts a re dem anding that b an k ers do b e tte r in p u b lic dealin gs and in the w ay that they 13 handle th eir a ffa ir s . T hey a re ch a rg in g that ban kers have not done enough in the p a st to help a lle v ia te our s o c ia l p r o b le m s . rig h t o r w ron g , W hether th ese ch a rg e s a r e I think w e n eed to be a w a re of them and w h e re p o s s ib le plan re a s o n a b le step s to c o r r e c t any a b u ses o r r e m o v e any s u s p ic io n that ban kers a r e n ot co n c e r n e d w ith the p u b lic in te re s t. An E ventful F uture Is L ik e ly In c o n c lu s io n , I think you w ill a g r e e that w e a r e going to co n fro n t m any ch a llen g es in co m in g y e a r s . S om e o f th ese r e f le c t an attem pt by b an k ers to o v e r c o m e p r o b le m s they have fa c e d in the p a st. w ill in v o lv e the w ay in w hich bankers s e r v e the p u b lic. O ther ch a llen ges We m u st a ll be a w a re o f ch a rg e s that b an k ers a re n ot doing enough to help a lle v ia te s o c ia l p r o b le m s and that they cannot continue to s im p ly a c c e p t d e p o sits f r o m the p u b lic and m ake sound loans and in v e stm e n ts. with doing anything w ron g , in dividu al banks, B an kers w ill not be ch a rg e d on ly w ith not doing enough. A s you w o rk in y ou r you a r e going to have to c a r e fu lly s c r u tin iz e cu rre n t p r a c t ic e s in a ll p h a ses o f you r o p e ra tio n s to a s c e r ta in that any dealin gs with the p u b lic, p a r tic u la r ly co n s u m e r s , a r e fa ir , a re not ju s t le g a l, but a cce p ta b le and fa ir . th ese ch a llen g es now , and that y o u r oth er p o lic ie s I b e lie v e that ou r attention to g iv es us the opportun ity to think about them , us to handle th em c o n s tr u c tiv e ly when w e m e e t them in the fu tu re. and p r e p a r e s
@FedFRASER