
          Southern Banks Charge Ahead
          By Overton, JimJim Overton
          Vol. 6, No. 6, 1984, pp. 18-20
          
          A financial services revolution is underway and Southern banks are
doing their damndest to make sure they get as large a slice of the pie
as possible. In the process they are likely to wreak havoc on the
access to banking services that people at the lower end of the income
scale now have.
          Several factors have combined to cause major shifts in
banking. First (and for a number of reasons), banking revenues have
dropped mightily in the last few years. Second, the partial
deregulation of the financial services "industry" has created a new
set of competitors for banks--even some K Marts have begun offering
money market accounts to their customers. Third, the number of young
professionals now cropping up all over the South has produced a demand
for flexible financial services which can cater to the mobile and
affluent.
          Fourth, powerful regional sized industries are demanding broad
ranging financial services that many banks can't easily provide. And,
the country's megabanks--particularly expansion-hungry Citicorp--have
announced their intention to become nationwide banking centers and, in
doing so, to put the small fry of Southern banks, out of business.
          Southern bankers, traditionally among the stodgiest corporate
executives to be found anywhere, have leapt forward into their own
revolution. The keystone of their strategy is the push for new
legislation that will permit them to grow into regional banks that
serve the entire Southeast rather than just one state or sub-state
area.
          Traditionally, both state and federal_governments have carefully
restricted banks' service areas, largely because of fears of how
powerful a national bank might become. Southern banks have established
loan-making subsidiaries in neighboring states, but they have not been
allowed to open full-service operations in other states. (With a few
exceptions. For instance, North_Carolina's NCNB cleverly exploited a
loophole to buy up a fleet of Florida banks). In fact, most states
don't even allow their banks to open branches all across the state,
restricting them instead to a much narrower geographic region.
          Recently, Southern bankers have started demanding the right to
expand regionally--and found politicians quite receptive to that
demand for interstate expansion. Proclaiming the need for a "Southern
Common Market," the Southern Governor's Conference has pushed
legislators to enable banks from other Southern_states to open up shop
within their borders. The message is taking effect: Florida, Georgia,
North_Carolina, South_Carolina and Kentucky have already passed such
legislation, and others are considering it.
          A look at North_Carolina's recently passed legislation indicates
that in conjunction with other states' legislation, it will virtually
recreate the Confederacy economically: Effective Jan. 1, 1985, it will
allow banks in all the old,` Confederate states, except Texas and add
the District o' Columbia, to provide full-service banking in North
Carolina--as soon as those states allow North_Carolina banks to invade
their boundaries.
          Naturally, the large Tar Heel banks--NCNB, Wachovia and First
Union--were very eager to get this bill passed. Forecasters predict
that regional banks will grow much more quickly than Citicorp-style
megabanks over the next few years. And since North_Carolina allows
statewide banking, the NC Big Three felt confident that they would
move to the top of the heap in the regional banking wars. First Union
is so eager to get started that it has established a corporate goal of
quadrupling its assets over the next four years.
          But the bankers didn't take passage for granted. The NC Bankers
Association held eleven regional forums with legislators in March,
contributed heavily in the primary campaigns and quieted dissenting
voices among the smaller banks, who were less sure how much they
wanted competition from outside banks.
          The bankers issued a consistent message: We need to keep step with
the competition. As NCNB chair Hugh McColl told his stockholders, "The
state cannot afford to have its banks lose relative strength to
companies in other states."
          With all this muscle behind it--including support from Governor Jim
Hunt--the bill to permit regional interstate banking flew through the
General_Assembly. With Legal Services lobbyists out of the way thanks
to new Reagan guidelines, there was no one to speak up against the
bill. Aside from some sincere reservations by rural legislators, there
were few roadblocks. In fact, the only real hurdle was the threat that
the Democratic-controlled leadership would block the bill in
retaliation for Hugh McColl's public endorsement of Republican
gubernatorial candidate Jim Martin several days before the bill hit
the floor of the house and senate. After a few trying days, the threat
fizzled, and the bill became law.
          As with the legislation in other states, everyone involved seemed
to forget that it might be important to assess the impact of
interstate banking on one important set of actors in the financial
services industry: the consumers. So it seems fitting to play a game
of (almost) twenty questions on interstate banking and what it might
mean for the average Southerner.
          First, a few appropriate background items:
          What's happening to retail consumers in the banking
revolution? The woeful economy of the last few years has prompted
banks to seek increased revenues from retail customers. (In the past,
almost all their income came from loan revenues.) Accordingly, service
charges on checking and the like have skyrocketed.
          In a study of the average service charges of North_Carolina banks,
Professor Nick Didow of the School of Business at UNC-Chapel_Hill
found that average bank service fees have risen thirty percent in each
of the last two years. However, customers who keep minimum balances

don't have to pay these fees, throwing the burden on those least able
to afford it. Concludes Didow: "When it comes to banking in this
state, the poor pay more and there is no way to dispute that."
          What does this mean for the low-income
consumer? One bank's marketing study obtained by a US House
member contains a chilling conclusion: Some banks are ready to lop as
much as fifty percent of the populace from their service market. Tim
O'Rourke, marketing director for North_Carolina's Central Bank, told
the Durham Morning Herald: "As banks become
deregulated, they will act more and more like non-regulated
industries. If you can't be everything for everyone, you want to
choose your market." Already some ten percent of the population
doesn't even use any bank services, and, says Didow, "We're likely to
see more households that can't aford a bank."
          An example of the difference in banks' new focus is found in
Wachovia's new banking card. Hooked into the national Relay and Cirrus
networks, the card allows customers to withdraw money from several
thousand places across the country. Such a service is highly useful to
customers who travel frequently, but basically useless to a good
percentage of Wachovia's customers--who will still end up paying
higher charges for the privilege of having such a card for their local
needs.
          Are bigger banks more expensive for the average
consumer? Didow's research points to one strong conclusion: "The
bigger the bank, the higher the fee structure." Fees for an average
consumer range from $72 to $263 at North_Carolina banks; most of the
higher figures occur at the larger banks.
          Given these trends, there are some fairly weighty questions yet to
be answered about the impact of regional banking:
          What information do we have on the impact of
interstate banking on consumers? A North_Carolina legislative
study commission pondered the issue and produced the following
conclusion: If the banks support regional banking, we'll introduce
it. (Can you imagine any legislature supporting food-tax repeal or
lower utility rates just because a group of consumers wanted them
passed?) Banks across the South have produced reams of data to explain
why they need such legislation, but there is precious little
information available about how interstate banking will affect the
affordability or availability of financial services to the average
consumer.
          What will be the effect on consumers? Since there's no research,
there's no conclusion--but there is reason to worry. Preliminary
studies by the Federal Reserve indicate that transactions cost more
per unit at bigger banks than at smaller ones. If this is true, then
regional banking--which would spawn much larger banks--could result in
higher costs for the basic consumer services banks provide.
          Obviously, there are many consumers who need services like banking
cards that can get them cash across the country. But most do not. Will
banking services remain affordable and accessible to that large group
of customers who do not need the frills banks are devoting more of
their attention to?
          What will regional banking do to the loan side of
the banking business? Once again, there's no hard evidence, but
as Martin Mayer concludes in his new book, The Money
Bazaars, "The basic business of the banks continues to be
lending to businesses. And for the big banks, inescapably, the
business has been one of lending to big businesses." Several studies
have shown that small banks remain the major capital suppliers for
small businesses.
          It's not clear whether bigger regional banks will continue to
supply small business needs if they gobble up lots of smaller
institutions. Former NC senatorial candidate turned Washington banker
Luther Hodges Jr. commented recently in American
Banker: "Let me reiterate that interstate banking is not
bigness for the sake of bigness; it is increased size for the capacity
to serve the rapidly growing needs of regional industry (my
emphasis)." That's fine, Mr. Hodges, but what about the needs of small
businesses?
          In fact, numerous studies show how vital local small-business
development remains to many Southern communities--despite the
difficulty such businesses experience in locating capital. The Center
of Community Self-Help in Durham has assisted a number of worker-owned
businesses in getting started across the state. These businesses are
providing vitally needed jobs for hard-pressed communities. Frustrated
by their inability to get banks to invest in these enterprises, the
Center spearheaded the formation of a Self-Help Credit Union, which
provides vitally needed capital for these emerging businesses.
          Unfortunately, it seems highly likely that interstate banking will
only worsen the plight of small businesses; regional banks might serve
the needs of regional industry, but will those banks be there to
provide the funds communities need to keep developing? The prospects
don't seem optimistic.
          If we don't allow interstate banking now, what
should we do instead? A word dear to the hearts to most bankers
seems in order: caution. Professor Didow comments, "I don't know all
the answers, but I'd like to know the implications of regional banking
for the retail side of banking for all the involved parties." If
larger banks do charge more for services, he notes, "I do not believe
it is in the public's interest to allow banks to expand." It does seem
that for something as crucial to people's lives as financial services,

the least we could do is study these issues soberly, especially
states' ability to regulate effectively.
          Unfortunately, the legislation is already in place in all too many
states, and the banks are lining up to gobble up their small
competitors. However, even the most aggressive banks have to wait for
the legislation to take effect--and for each state's regulatory
apparatus to approve the merger. T here might still be some methods by
which concerned consumer groups could call for more study for the
impacts of regional banking, put some brakes on the rush to merger,
and get their legislators to reconsider the already passed
legislation.
          For a host of different reasons--the desire for a stable economy,
the fears of another depression--we have allowed banks an economic
security that most other enterprises don't enjoy--especially the
provision of federally insured deposits. In return, we've asked for
little. The record of corporate responsibility rolled up by many
Southern banks with regard to investing in the black_community and
providing services to low-income people is pretty abysmal. To adopt a
favorite banker's expression, it seems only prudent that we should
slow down the interstate merger process and ask for some return
guarantees before we allow the South's banks to charge us with an
uncertain future.
          
            Jim Overton is the associate publisher of The
North_Carolina Independent.
          
        
