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Willi.s J .LWJ.nn
( SpePch )
Pennsylvani a Bankers As soc ia tion
M ~y 24, 1972, Atlantic City, N. J
A NEP CO!"ff,R ' S '! I r r. OF THE U. S. J~MH\I N C TNT.US TRY
AS A N f.HCO~ffr TO Tr m PUBLIC SFCTnn OF TH E
HE TO SUCCEST /\ THI
I N PEi'ff!SYLVANI.r\.
MO NE TJ\T~Y POL ICY
THAT I
cnosrs
AND ClTRE FO R /\NY AND ALL
·AtSO , I /\M NOT ADDRESSTNG MYSELF TO
MAT'I El .S THIS MOHNI NC , AND HAY I EMPlf/\SIZE
SPEAL. OHL Y FO R MYS EU i' AND NOT FOR MY
COLLEAGUES I N TH E FED J. P.AL RESERVT: SYST P 1.
I MPEOVIHG THE I: Ff IC IEJ'.: CY
SYST FM .
or
TH E 1~ /\ TIO T'~ '
s
l fY n.m.fJ
ru~s
F rnN1CIAL
n mFED , AS A NOVIC E PUBLIC nr'FIC l /\ L ,
~ ' , · ~· ' - ' t ,• r.~ I • ' " '> ! I
,,! .L .l
J. .Ld \ .J ,,J. ·; ..:. .
~
CH ARGED HITH RESPO NST BIL1T rns OF HF.LPnx ;
MAXIPU~1 UEHEFI'l'S FRON THE OP ERl\ TIO n 0 17
SYSTFli FOR OUR
mrrmr
'T"Q Arrn F.VE
Tm: FIN'\NCIAL
SOCIETY ) \.?P ILE YOUP._
MAJOR RESPO\"!S I H LITY I S TO Yot.R SrIAR EJ10T. Yr.RS .
T~ lOUCH TS ABOUT TH E
rnr.
BA NK, ANT)
TH~
H 11 HTS TRY JHTAN HTTP
SYS TE~ r SH OULT) BE
I f{
r:n ! NC
THE FU''JCTim;P!G OF OUR FHJ/d ICL \L SY ST EM .
IN Ttrl'N G/\VE RTS E TO ALL YJ1-
ns
MY
EF f 'ORTS
TO U!PROVE
TFJS
OF QlT EST WNS AH011T
YOUR ACTIVITTT'. S- --AN1 I \VOllLD l.IKF TO SH1\RE A FF.H
OF THE r:ur:STJO MS i· 1TTH YOU .
I WOPLD AL SO
Wf'.LCO~'il:
- 2 TO TH.ESE QJJES TTONS •
TH E Rf.ALLY l•
T~TD/\HFNTAL
ME THIS HORNING IS A BIG ONE:
ISSUE THAT CONCERNS
m I/\T 1S THE OPTIMUM
FUJ/\nCIAL SYSTEM FOR THE U. S . TODAY?
NOW I KNOH
THAT YOU Arm AS INT ERESTED IN THE ANS1· ER TO THIS
QUESTION N> I /.. 1, . BUT OUR
QU EST ION HAY DIFFER.
wmm
INTEPPRE TA'J'IONc~
OF 'I'Ht
LE T 11E AHPLTFY 11ns POI NT.
I AS V YOU WHAT HOULD YOU CO NS ID ER TO BE
THE OPTIH/\.L BANYING SYSTEll} WHAT I AM REALLY
ASKI NG IS WHAT KIHD OF BANOHG nmusTRY HOULD YOU'
THE Pn.ACTICrw:; BANKERS' CREr. TE IF 111EllE WERE HO
REGULATORY AUTHORITY TO
CO HSTRAII~
YOU, KEEPI NG I N
H ND THAT THEilE WOULD STILL BE A HONE"'/ R'{ AUTifORITY
TO MEET THE cornrn:.Y: s Cf ~ANGING i·JEED S FOP Hot;EY.
ALTERHATIVEl.Y' H11AT SHOULD BE 111E
nusnmss
WOULD YOUR PRODUCT-·MIX OR ACTIVITIES
1
OF BA1\1ZING '?
E DIFFERENT
TIIAN NOW?
PRESU>tA.BLY
~
IF YOU WERE FREE TO DO SO, EACH
OF YOU WOULD PROCEED TO DEVEtOP YOUR
ONE BEST SUI TED TO
BN'H(Tl~G
YOUJ~
0 '7. l NEED;;.
AS
THE RESULTI NG
STP.UCTURf. WOULD BE A sm nrATION OF YOUR
INOIVInUAL CHOIC ES .
AS A PUBLIC OFFIC IAL , I
HAVE A DIFFERE;JT PE1. . SP ~r-~CTIVE .
WHAT IS THE OPTHtAL OR ID EAL
I HUST THI
SOCIETY.
INSTI1TTIO:·~
~K
IN
TJ:f~· lS
~·JHE:'r
I CONSIDL
H/\~Jn~ : c
01" THE BENFFT
11
:·
~
SYSTC l ,
TO OUB EJTIRF.
THr: lD[AI, B. tTK ING SYS T ·,H FROM 11US
- 3 -
VIEW IS ONE TH/\T PP,OVIDES TH E DESIRED LEVEL OF
B/J\1ZING SERVTCES A' · THE LOWEST POS S IHLE COST .
WITH
SUCH A RAt!KTNG STRUCTURE, WE WOULD OBTAIN AN
OPTIMAL ALLOCATION OF SCARCE HESOUll CES AND A
STABLE HONFTARY STRUCTURE.
IT IS IMPOPTANT TO KHOW
HOW FAP. YOUR ID EAL IS FROM SOCIETY'S J~ECl\U S E
OF THE I MPLICATIONS THIS HAS FOR THE APPP...O PH IATE
DEGH EE AND TYPE OF BANK.HJ(; H.FGULAT101'J.
MY POLrf IS TI!AT THE PRJ<'.SE NT SET OF
BAN1< RECULATIOI:1S IS NOT NECFSSJ\RILY C0 1'7SI ST ENT
mm
WITH EITHER OF
BANKIN(; SYSTEM.
S ENTD!Ei'T T
/IJ_,O NG
POSS IDLE TlLt\T
IDEAS REGAHDING AN OP TJHAL
BECAUSE THERE IS INCREASI NG
THESE LH1ES
Clli\l~G ES
ARE
~
rn
BUT LETt s GO BACK TO
I T S EEMS OlJlTE
STO RE FOE US.
·nrn
BEGIHNING .
BANKI FG IS NOT ONLY A VERY I MPORTANT INDUSTRY
D~ TlI E SENSE THAT
I T IS THE PRODUC ER OF THE NATIO N'S
MONEY SUPPLY AND TJlE PRI NCIPAL ARH OF
tO NETARY
POLICY, BUT IT IS ALSO A VERY REGULt\TED I NDUSTRY.
TOnAY, IJJ\NKS ARE SUIU ECT TO CO NTROLS AFF ECTING
THE rn NUM13ER ~ THEIR ORGAN IZATIONAL STRUC TURE ,
THE TYPe OF SERV IC ES THEY CAN
OFFER, THE
COHPOSIT ION
OF THEIR ASS ETS) T11F IR CAPITALI7.ATT01\J , Aim THEIR
l..OCATI0t7- -TO
TO HI ND.
l~EK TIO N
A
FE~ · !
TPAT c orm HOST READILY
AL T1IOUGl1 TH E FEDERAL
THf. ONLY rmcm.ATOPY AGE!:CY
RES l~ RV S
FOR THE
IS
1
' 0~.'
IND UST RY~
WE DO CCHJTRIBUTE Ol TH SHA.Tm , I NCT.PDIMG RH::ULATIONS
- 4
~-
A Ti ROHGH Z, EXCEPTING H ~ FOR HEH 1ER BMlYS •
COJ'~STP.. ,1\H1TS
BL\ 1'71~S
An.·: I MPOS ED OJ
co
BY THE FDIC) TIIE
ADDlTIClHAl,
THE gEnAVIOn. OF conmmcIAL
1PTROLL ER OF T11E
cmnrn 1 ~cY'
AND ST/\ TE Bl NKING AU TH ORIT I ES .
BUT \·:HY DO Al.I.
TH E ~~ E
REGULATIO N ~~
RESTiarTIO NS ON DANKINC EXIST?
TH E
AND
~;mer:.
A ~SH ER
ITAS BEEN THAT 'IJf ESE REGULATIONS HEP.E IJ:JS TJTUTED
TO I NSURE TI-rn ST; nILITY AND SAFETY OF THE BJ\NlGNG
SYS TEH.
rn
nrc:wr
THE T'ACE OF ALL THIS SlJPEP"VIS ION' ONE
GET THE MISTAKEN Ir't EA THAT RANK REGULATIO NS
AI'E TIIE PRHJCIPAL
D ETEI',~lH'.,1\ ,1'1"'
OF THE NATURE OF
THE c m u·lEnCI/\.L nt m :InG SYSTEM .
IN
TH E AN- ''l-TP..US'.L' L/..JJ S AND 1'liE HI SJ C
APJ~
FACT~
LA\:~;
OF CO U.SE ,
OF ECONOFICS
PROB ABLY MU CH HORE SIG P IFIC/\l,! 'f H!FLTTENCES ON
THE NATURE ANT) STI'-.UCTlJRr: OF THE Bl NKU:G SYST EM .
YET , IT DOE;, SEEM THAT THE SAFETY
OBJECTIVE OF REGULATION
l ~S
REEN ACHIEVED .
IN
THE POSTHAR PFP IOD , BANK T'AIU P,ES Il:\VE BEEN
INFRE[!UENT .
rn
THE FEW LXCRPT IO \rs m rnN HANKS
ltt~ VE
FAILED ; THEY HAVE OFTEN BEEN ABSORB ED BY OTHF.R
BA!'KS .
HHEN InSURED BANKS HAVE CLOSED, TH E LOSS
TO DEPOS I TORS HAS BEEN SUBS TANTIALLY DPfINTSHE D
BY DEPOSl T
I NSU~J\NCE .
WHAT IS ALSO APPA RENT TO
A ~l Y
OBSERV ER
IS THAT 'nlES }~ Rl\CULATICP;S HAVE lLi\ D FFFECTS OTH El{
THAN STMnLI ZATION OF TH E NATION ' S FI FANC T/\L SYSTEM .
- 5 ONE HAY OF GJ":TTI HG AT
AS !~E1 J
QUESTin::: 11i1\T I
Tl! E~ J~
EFFLCTS IS TO
EA"RLIF.P :
THE
\>D!A.'r HfH JLD BE THE
EFFECT ON YOUR
0PLP~A TI0 1'JS
\-!ERE Hr::!' IOVED?
LOW HOULD THE B1 °!'J KH'. G I
IF ALL BN·wrnG HFGULATIO:'!S
-~TH
STPY
hlflf..T POULL YOH DO THAT YOU ARE POT DOINf:
DIFFER?
NOW AND
ASJ~
nov
SCAFFC\I.DH~G
HOULD YOU DO IT IF THE BANK H 1G
HERE REH0VED ?
R';~ G
LATOPS
OBVWUSLY, TYT ETtE AH.E A
NUl'lDER OF ALTERNA TIVF ACTT VIT IES IN HHI CH YOU CO ULD BE
BUT ~
ENGAGED"'
l Hmm EP ' n .J YOU HA\' F --IN THE
SHORT PUN--TH E
n.ANA G EI-TEW~
nn~onn c r: s
THES E TllI NCS?
Arm-- I N T1I E LO"NG Rlr!-J--WOULD THEY BE
TO DO sm.m OP
PRO"FIT.l\DLE USES OF YOUR P.ES OURC ES ?
I GT fESS THAT I
AM GOI NG BACK TO THE BASIC QU 1'"'. ST H\J OF Ul !AT IS 'r:1E
BUSI HESS OF BAlW ilrG?
PROVInLm~
A
RA ~ : GE
OF
AIUi, YOU I N TH E
SEP\TI C F~~
nmn nr.ss
OP
TO THE LC Ci\L c m e-n.HH.TY
OR IS IT HORE DESIRABLE FOR YOU TO SP ECIAtIZ E I N A LHTITED
NUMBER OF PPODUCTS OR TO OPERATE I N
11AXI
HZ~
DI~T/'1N1'
MARKETS TO
PROFI TS ?
REl P.MP,ER , HOHEVER , TP AT YOU tWULD REH/\ IN
SUBJECT TO OTHER
REST~ICTIO N S.
SOCIETY ' S I NTfRESTS
ARE SEHVED WELL BY COMPETJTIOFi , AND TH E ANTI-TRHST
TRADI TION IS DEEPLY ROOTED
n1
THIS
cn u~rrn.Y .
THE FACT REH/\INS TE AT BA n<I.NG RFGTITJATIONS-- AS
WELL AS
A~1TI-TRUST
LAHS AND THE RJi'J.i,.LITIES OF
ECONOMICS--1IAV E H/\D EFFECTS ON TPE OPEHATIONS
OF THE BMIK.INC INDUSTRY I N ADlHTION TO THF. EFFECT
- 6 -
ON SAF J<.TY .
1JlERE ARE UN NT .CI.PATED COSTS AS
\
j
HELL AS ANTIC IP/\TFD BENEF IT2 FROM DETAILE;, Rf'.GULATION.
'lllE MOST ORVTOUS SUCH COST IS SOME LOS S OF UJ<"'TITUTTON/\.L
FL EXIB LITY )' WHICH IS I 1 AffMFlJL BOTE TO PURLIC
RES P 0 ~'1SIPLF
AND PHIVATE INTEP.ESTS.
PUP.LI C OFFICJi\tS
MlJST BE Cot·;CEP.MED /\.ROUT THE TOTAL IMPACT OF AH
ACT OR HEGUtATION.
THE
co~~ T S
VE HUST KEEP ASnnG :
AP.E
OF A REGULATION LESS THAN 'J;-lf, VAlXE
OF THE BEI·ffFI TS OF TIL T
R E C ;ULATIO ~ ~
TO sncrFTY?
CAN A n IFFr:n?:-n S ET OF REGlJLATIO ·IS BF DES IGNF:D
TO ACHIEV E THE SAHE DF.S I RED r:rOAtS AT A LOHER
COST ?
COST )
WH AT IS 111E ID EAL ( HIGHEST BEmT IT--LOiffS T
RH~ULATORY
STRU CTURE ?
" 'H f.SE ARE
.n ESTIONS
THAT WF !{U ST CONTINUE TO EXPLOhE .
LET HE GI VE SOME EXA"'rPLES OF THE
}~FfT CTS
OF REGULATION WHOSE COSTS AND BP mFITS HL\ V E TO
BE CONSIDERED IN THE EVALUJ'TIO N OF THE PRESE11T
S ET OF REGUI.. AT IONS.
F TRST , I THIEK HE CAN AC RF.E THAT PUR I.IC
POLICY P.£\S
nffu nmcv_n
THE NUMBf.P ) SIZE, AHD
ORGANIZATIO NAL STPTC TURE OF BA ·JKS .
SO, FOR EXAMPL E, THPOUCH
ENTRY A}.l)) RRANC'It ·~G
IT HJ\S DO NE
RESTR IC T 10 1'~ S
ON D ~ 1'0\TO
Attn 'JJll\Ol JGF TEF. CONCFRN FOl
COMPETITIO t1 ~lONG BA Y!KS •
DEVE1,0Pl~F NTS
IN THE
STRUCTPRE OF TH E nANKING INDUSTRY HAVE MIJrnn RED
REGlTLATORY CHANCFS ANO JUDICIAL RULTl CS, AS WELL
AS ECONOF lC FACTORS.
- 7 FROM THE RANK MERGEP ACT OF 1%0 UNTI L THE
END OF 19 71 , ALMOST 20 % OF THE HANK;; IN THE
FOURTH DISTRICT WERE
ACTI VI TY .
A W~ ORBT:D
TH ROUGH MERGEE
WE ARE CURPEHTLY OBS Ef~VI.NC A REGULATI01'1- -
CONSTRAI!,mD EXPANSION OF
mm-BA w
HOLDING
1
.JUDIC L.\L
COMPANIES INTO B1- n1(-· RELATED ACTIVITIES.
RlTLHrGS ON MERGER CASES I N TH E rrnsT HALF OF TJ .E
1%0 ' S AND THE
BA~K
HERC:rEP. ACT OF 1966 AFFIRH,D '11iE
APP LICABILITY OF MTTI--TRUS T Ll\VS TO THE BMm.nrG
INDUSTRY.
TEE B/\HK H0LDT NG COHP1 !,Jy AHENI>ViFNTS OF
19 70 PLACED ONE- RANK il01 DING CO!fPAlHES UNDER THE
REGULAT()J<.Y JURISDICTIO N OF TH E FET)FRAL RESF1{VE .
PUBLH~
IT IS EVIDENT, THEREFORE , THAT
POLJ.CY IN
THE FORH OF S'.IATE STATUTES , CO UET RU LINGS , Mm
NATIONAL I [GISLATTOT·J BLEND .TO FORM BANKING'S LEGAL
ENVIRONHE NT) AND SUCH AN ENVIRONHENT IS LIKELY TO
BE
RETAH~ED
NO MAT TER HH/\T CIIANGES ARE HADE JN
THOSE DETAI LED REGULATIONS SPEC IFIC TO BANKI NG.
HOREOVER' WHETHER o n~ T1\KES A BANKER ' s VIE\ )POINT
1
OR THE P.U BL IC PERSPECTIVL
HHAT
ts
W~
NEED TO KNOH:
Tm, HOST EFFICIEl\;T SIZE BAlJK ?
KNOW TILi\T THIS QU EST IOlJ CAP BE
AJJSHFI~ED
I DO NOT
HI'J1-IOUT
SP EC IFYHiG THE EXTEJJT OF 'l'HE MAr..KET OR THE TYPE
OF BAHKrlG SERVICF.S EFF ECTIVE'LY
DJ~HAlJDED,
BOT
SOME STUDIES HAVE SUGGESTED THAT PER UNIT COST
OF BANK SERVIC ES DO ES NOT DIFFER SIGNIFICANTLY
- 8 -
170R A WIDF. RANGE OF B/\NK SI 7,ES FRO I, SAY, LES,S
THAN $5 MILLION TO $500 NI ,r_, IQ N IN DEPOSITS.
THIS IMPLIES TH/1T BA NK GR0 h'TH IS NOT A ROYAL
ROAD TO LOH COS TS AND RATS ES QTJES TIO NS AROUT THE
BENEFI TS TO SOCIETY OF U:CRE/\SUJG
IN BAN 'ING .
HOR
.,OVER ~
CO N C F.NTR ATIO i.~
IrSOF.AR AS REGULATION
HAS INFLUENCED BANK STRUCTURE' ONE
wommn.s
IF~
ON BALANC E , TI-IE Er FECT HAS BF. EN TO THE ADVANTAGE
OF SOCIF.TY MID / OR THE I NTll JSTRY .
RF.GUL ATi or~s
HAVE ALS O AFFE CT ED THE
COMPOSITION OF ASS1:TS HELD BY 0. S. COM'M ERCIAL
RANKS.
N1~ T
AND , AGAIN; IT IS WOR11l AS KI NG IF THE
EFFl::CT HA S BEEN POSITI VE OR NEGATIVE TO
THE I NDUS'.L'RY A:'rn SOCIETY AS A WHOLE .
I HAVE
I N HIND REGULATIONS SP ECIFYI NG THE LE\ EL AND
TYPEc' OF AS SETS THAT HUST BE HELD AS RESERVES .
RESTRICTI ONS ALSO APPLY TO THE TYPES AND AHOUNTS
OF LOANS AND PWESTMENTS 11IAT MAY BE HAD E .
IT
APPEARS THAT TI!F GOAL OF A STABLE BANKH".G
SYS TEM HAS BEEN HET , BUT VTIIAT COSTS HAVE BEEN
I NCURRED ?
THES E REGU LA TIO HS lLWE AFF ECTED
TH E FLOW OF FU NDS TO SECTOT?..S SUCH AS HIGH-RISK
VENTURES A11D LO JIG-TERN CAPITAL I NVESTHF.NT .
HY POI NT IS THAT REGU1..A'I'I01·s DESIGNED TO ENHANCE
THE STABILITY OF THE BANKING
SYSTEN HAVE HAD EFFECTS
THAT ARE BEY OND THOSE INTDiDED. AND TllESF EFFECTS
-
Ml\Y BE
lJ NNECE ~)f;./\.RILY
q ·-
PUSHING US A\,JAY FROl-·1 AN
InEJ\J , SITUATIO N BOTH FIWM S OCIETY ' S AND TBE J NDU~:TnY 'S
WE ?vi TST TIE CO NTHH!Af,LY J\LFTn TO THE
VI EWPO I NT .
POSS rnr LI TY TJlAT REGUU:no:t~S i · .Y
nr:r,mrn
RESTRICTIVE
TIU~
OF H1N0Vl\TIOlJ RATH ER TH/\H PP-OTFC'JIVE OF
PUBLIC
INTER[ST .
REGULATION HAS ALSO AFFECTED TllE VEP.Y
NATUr.E AND
C0! 1POSIT IO :,~
OF B/\JTKT?Jr; LI/\RILITIES
VIA RULFS PF.G/\.RDinG Tlm DEFTNI TIO?J OF
D1~POSITS ,
RESERVE RI:O.UE' El 1.ENTS, Alm U TTERES T LIHITATIOHS ,
1'0R EX_!\'..' 1PLE .
ONF EFFECT OF TH ES I~ RJ:::Gl "LATIOHS TilAT
IS DH'FIC UT..T TO RECO?!CILE WI TH A. S0CIET/\J~ POINT
QJ;' VID-J IS THE DISCl~HH~Hi 'fIGN AGAINST S(1/\LT, S/\VERS
'rnAT HAS OCCURFT:D DURH!G
RATF.S .
p:r,ruons OF HIGH I NTERES T
THERE IS . ALS 0 A DM:GER HE'?..E THAT OUR
REGULATIONS HAVE RESTRICTED
IN N OVATim~
IN 'I'HE
PROVISION OF SERVIC ES-- ALTH0l1CH AT TINES IT APPEARS
THAT OUP. RSGUL'\TIONS EAVE SPURRED
Rl~_1\LLY
IMAGINATIVE ,
BUT COSTLY , METHODS OF AVOIDA>1 CE .
THI S MORiflNG , I HAVE TRIED TO CHJ\J.. LEl~GE
YOU TO THINK ABOUT HEAT THE
BE.
BAl'Wil~G
I NDUSTRY SHOULD
IT IS CLEARLY A HEAV ILY REGULATED I NDUSTRY .
WE rnrsT cor ST/\.NTLY EVALUATE TH E TOTAL SOCIETAL
EFFECTS OF RFGTJL TION /I.ND HEIGH THEr:-i COSTS Mm
BENEFITS.
THER
~ FORE,
THERE ALWAYS RE°!:' lA.INS A POSSIBILITY ,
TII 1\T THF TYP E AND DEGHEE OF REGULATI ON
- 10 -
WI LL BE CllANCFD TOHARD A DIFFERENT SET O:F
PlJHLTC
RESTR I CTIO NS ) PERMI TTING PEHHAPS NOirn CO 1P ETITIO N
WITH LESS EHPB ASIS ON TfTE SURV TVA L OF SPECIFI C
I NSTITUT iotTS.
TJ L T IS CERT
THE PUNT COM . USS IO N REPORT .
HU~T
n LY
THE
m IF T
OF
THF. FED ERAL HESERVE
CAREFUt LY WEICH TH E LO NG R./\..·~ G E COt, SEQUEHCES
IN TEP-HS n F COSTS AND IffNEFITS OF THE PRESENT
AND ALTETI.K\TJVF SYSTEMS. PERHAPS WITH OPEN
L nrn~'
OF COl'fr!UNIC,..TJ.O N HET1·1EEN THE PUBUC /\ND PRIVATE
~: E CTO R,
WE CA N , .PPROACH A SYSTEM TPAT IS CLOSER
TO THE ID EAL FINANCIAL STRllCTURE TU .T ALL OF
US DF:SI P.E.
@FedFRASER