The fact is, deregulation has not caused any failures. The problems experienced by a relatively small number of banks are the result of mismanagement and in some instances, fraud.
Most banks - the great majority - have shown that they can operate in the new environment of competition and limited deregulation. The deregulation that has occurred to date relates only to savings accounts and, on a selected basis, to geographic expansion.
In this new environment, consumers are facing choices that were unknown just five years ago. In the good old days, the '70s, roles of financial service providers were clearly defined. Consumers went to their bankers for loan and deposit products, to a broker to buy securities, to an agent for insurance and to a national retailer for appliances for lawn mowers.
How things have changed.
Today, bankers are offering brokerage services and discounting the commissions. Brokers are selling asset management services, and insurance agents are taking deposits in the form of Individual Retirement Accounts. And the national retailers have established financial supermarkets, right between the appliances and the lawn mowers.
In the middle of the cauldron of activity is the consumer, who must choose the services and products best suited for his or her particular situation. It is a choice that is becoming increasingly difficult to make.
Consumers must keep up with new products and services, new pricing and new providers. In addition, new applications of technology allow consumers access to the money in their accounts at all hours of the day, in areas distant from their homes and even in locations across national borders.
In fact, today's consumers have so many options that they may become confused. Consumers are subject to a clutter of print and broadcast advertising, direct mail, telemarketing and personal sales contact. It is a bank's responsibility, indeed it is a good business practice, to help the consumer make sense of it all.
First, however, we must recognize that we have to work with groups with whom bankers too often unnecessarily become adversaries - groups such as consumerists, legislators, regulators and the news media. If bankers show that they are worthy of the trust and responsibility inherent in operating in a deregulated environment, we can be freed to devote more of our energies and resources where it counts most: directly to the consumer.
One of the issues of importance to consumers and banks is interstate banking. The bill recently passed in Harrisburg and signed by Gov. Thornburgh that permits Pennsylvania's commercial banks to enter markets in neighboring states - and allows banks from seven other states and the District of Columbia to enter Pennsylvania - is a step in the deregulation of the banking industry.
It will also have direct, positive benefits for the state's consumers.
Interstate banking will result in a stronger financial services industry, which translates to direct consumer benefits. By forming regional partnerships, banks will have greater resources for research and development, thus providing consumers with expanded and more sophisticated services.
In addition, consumers will enjoy the convenience of banking services available at a larger number of branches and automatic tellers. And with increased competition, consumers will have an unprecedented number of
financial service options.
There are some who believe that interstate banking will mark the end of the state's small banks. The experience in states that currently permit interstate banking does not support this position. In fact, entrepreneurs in recent years have been starting new banks, most of them small, to serve segments of the market that they see as being overlooked by their larger competitors.
This is not to suggest that banks should operate free of regulation. On the contrary, the nature of the business is such that regulation is necessary to protect the soundness of the banking system. There is a role in the
financial services system, inevitably part adversarial and part cooperative, for bankers, regulators, legislators, consumerists and the news media, all working to enhance the consumer's understanding of products and services.
Consumers want to know that their money is safe and that the federal government stands behind that promise of safety.
The banking industry and the consumers are not served by a re-regulated environment. Consumers aren't especially interested in knowing whether a product is regulated or not; they want what is best for their needs. The nonbank financial-service companies operate under different restrictions than do commercial banks, especially related to accepting deposits and granting loans.
What bankers are looking for is regulation that is applied fairly and evenly to all participants. The revolution in financial services is proceeding at a dizzying pace, and somewhat chaotically. The role for government is to provide a means for discipline in a deregulated marketplace. The role of the news media is to keep both the industry and its regulators honest and sincere in their efforts and accountable to the public.
In the end, after they have been in the financial services marketplace for years, it is not fair to tell the national retailers to go back to selling appliances and lawn mowers and nothing else. Some companies want to sell stocks and bonds; others want to sell socks and bonds.
It is equally unfair to tell banks that they must offer certain products at certain prices, and that they can operate only in certain markets. Banks have long played an important role in the development of the communities that they
serve. It is a role that goes beyond their traditional function of deposit taking and lending . Bankers traditionally have supported the quality of life in their communities through involvement in economic development projects and in volunteer and service organizations.
For communities to grow and prosper, they need the support of strong banks. The best way to ensure that continuing support is to give the banker an opportunity to compete with all financial service providers.
The real challenge for the banking industry and for legislators and regulators is to strike a balance between protecting the integrity of the
financial services system and giving the participants - the companies and consumers alike - the opportunity to control their destiny.