Monday, April 20, 1998

Banks merging against the flow of law

By Molly Ivins

AUSTIN - Anyone with any remaining doubts about how the world wags nowadays need only have read last week's headlines, in which two giant corporations, Citibank and the Travelers Group, calmly announced that they were running roughshod over the law. Further, they crooked a large corporate finger and summoned the Congress of the United States to fix it for them. "We want that law changed, boy. We want it changed now, and we want it changed to suit us, boy."

And the very Republicans who have been piously insisting that even the president is not above the law now demonstrate that of course Citibank and the Travelers Group are above the law. Such generous campaign contributors cannot possibly be expected to obey the law.

Congress scrambles to obey their orders. Sen. Al D'Amato, chairman of the Senate Banking Committee, said in The Wall Street Journal: "We can no longer afford to allow piecemeal deregulation of an industry that is so important to our economy's health and vitality."

Yes, boss. Yes, boss. No piecemeal deregulation - let's do it all at once. After all, members of the Senate and House banking committees have received more than $7.8 million in campaign donations from the financial services industry since the beginning of 1997, according to the Center for Responsive Politics.

The law in question, the Bank Act of 1933, called Glass-Steagall, is designed to keep financial institutions from mingling federally insured bank deposits with Wall Street trading. It is the habit of papers like The Wall Street Journal to write about Glass-Steagall as though it were some quaint, dated relic of the Great Depression, of no possible relevance to the computerized, globalized, streamlined, big-time world of modern finance.

Strange - the economy of Japan has been frozen for seven years and teeters on the edge of free fall right now. And what happened to Japan, which just a decade ago was supposed to take over the world? Rising on their holdings in the Japanese stock market, the banks started loaning money for wildly overpriced real estate deals. Then the Japanese stock market collapsed, and so did the real estate market, and now so have the banks.

Paul Volcker, former chairman of the Federal Reserve, told The New York Times last week: "Congress is under pressure to weaken our traditional barrier to combinations of commerce and banking, precisely the practice in Asia and elsewhere that we rail against as a major source of institutional weakness."

Of course, there is another piece of the Japanese problem, as the Asian experts at the World Affairs Conference in Boulder, Colo., agreed last week. In Japan, you see, the big banks hold far too much sway over the government. The banks were able to influence the government's economic decisions; they had cozy relationships with the finance ministry and the big bureaucrats. Not like here!

Generous interpretations of existing law by the U.S. comptroller of the currency have already weakened banking regulations, and in February '96, the Federal Reserve raised the amount of revenue that banks could get from security operations from 10 percent to 25 percent, thus effectively breaching the Glass-Steagall Act.

Malcolm Bush, president of the Woodstock Institute in Chicago, which promotes investment in low-income communities, wrote in the Chicago Tribune: "There is evidence from countries as diverse as France and South Korea that mixing financial institutions and commerce is very risky business. As individual corporations gain market-dominating power over flows of capital and credit, capital markets tend to break down. Even Japan, with its huge investments in technology and education, is now suffering from the unwise decisions of a financial industry corrupted by size and overextension."

Bush also notes that the new mega-mergers (Citicorp and Travelers were promptly followed by news of mergers between NationsBank Corp. and BankAmerica Corp. and between Banc One Corp. and First Chicago NBD Corp.) could well undermine the Community Reinvestment Act that requires banks to do business throughout their service area, including low-income neighborhoods. According to Bush, the CRA has resulted in almost $400 million of investment in poor communities, revitalizing many neighborhoods.

And all this is being done in your name, you lucky little consumer you. These big, big new banks say they just want to give you better service at a lower price.

The great thing about Americans is that we can be counted upon to greet this pious hypocrisy with the Bronx cheer it so richly deserves. The raspberries should be loud indeed in Florida, where NationsBank has been shutting down one branch bank after another since it bought Barnett Banks. Yes indeedy, fewer choices about where to bank certainly means lower fees for all of us - we can hardly wait.

Sure, go ahead, repeal the Glass-Steagall Act. We need a new world record for stupidity; the last one has been standing since 1981, when Congress passed the Garn-St. Germain bill deregulating the S&L industry, with the spectacular results we all remember so fondly.

Creators Syndicate, Inc.