The economic events of the past few days have had a dramatic impact on the 1979 convention of the American Bankers Association.
The bankers -- more than 13,500 are registered at the convention -- are preparing to head home Wednesday afternoon with record interest rate figures on their minds and extreme caution in their hearts.
Some bankers have gone home early. Riggs National Bank President Daniel Callahan iii left a day early this morning. "With all of these changes in rates, I began to feel guilty about staying here," he said as he left the convention.
Callahan said he plans to get back to his desk in Washington, across the street from the Treasury building, as quickly as possible, in order to help guide his institution through a new era of hourly interest rate changes and tough lending decisions.
The end result of the Fed's actions last weekend will be that banks will pass some new charges along to customers, money will get tighter and fewer people will be able to pay interest costs, he stated.
"I only hope that the productive areas of our own Washington area community do not get squeezed too tight ... It's one thing to squeeze some unnecessary lending and another to hit legitimate businesses that can't afford 15 percent rates ... I would rather reduce profits of Riggs bank) than put some customer out of business," Callahan observed.
Callahan's comments, and those of other bankers, seemed to confirm a theory about ABA conventions voiced this week by Willis Alexander, since 1969 the executive vice president of the Washington-based bank trade association and himself chairman of Trenton Trust Co. of Trenton, Mo.
Alexander said he can recall when his father, a Midwest banker, came home early from an ABA convention in 1930. He was extremely upset by what he had heard and was determined to clean out of his bank any marginal loans -- financing of risky ventures or situation where lack of ability to repay was evident.
He did so, Alexander said, and the bank was the only one of four in that community to survive the Depression without having to assess stockholders for new capital to stay alive.
The ABA convention that year had been useful because it "passed the word" of pending economic crisis, to those who listened. And Alexander said the words being passed this year are: "The ball game is over," To Alexander, those words translate into a warning to bankers that they and their customers must stop planning for the future with expectations that inflation will continue on a merry upward spiral.
One prominent banker is not so sure of this scenario, and his unusual late-night comments on Monday were not particularly welcomed by ABA leaders, who generally have lavished praise on the Federal Reserve's new monetary controls.
Willard C. Butcher, president of New York's Chase Manhattan Bank, was hosting a reception at the historic Beauregard-Keyes House here. Moving to the rear of an open courtyard, Butcher found a small rostrum and proceeded to hold an unprecedented cocktails-with-press conference.
While welcoming the Federal Reserve action, Butcher complained that it was too isolated to combat inflation effectively. "They have sent in Paul Volcker alone to solve America's economic problems and it won't work ... (it) is like sending in the Air Force without sending in the Navy and the infantry ... to win the war," the combative Chase chief stated.
Butcher said the White House and Congress must also be enlisted in the war. Specifically, he called for immediate steps to ease regulatory burdens on business, action to halt labor wage increases far in excess of growth of productivity, new tax policies to encourage savings and investments and maybe an amendment to the Constitution making it more difficult for the government to operate without a balanced budget.
Unless there are such fundamental changes in economic policy, the country will be dumped into a deep economic crisis in the 1980s, he warned.
For now, Butcher agreed, "there is a new ball game." He revealed that Chase monetary experts were to be at their offices by 3 a.m. this morning to "read the tea leaves" from London and begin the process of setting ever-changing rates. A prime rate set at 9 a.m. could be different by 3 p.m., he declared. "There's a whole new series of unknowns but the drift is very clearly to a higher rate environment for the near term," Butcher stated.
He also forecast that the centeral bank decisions will lead to a deeper recession but that if that is not the end result, it will have been wasted. And if, as Butcher expects, the war on inflation is not won by Fed action alone, "I see prospects for wage and price controlls ... a cop-out."
Along with wage and price controls, a subject most distasteful to bankers is the suggestion of money squeezes at some institutions and possible bank failures.
At this convention, concerns about these potential difficulties were voiced not by some industry critic but by John Heimann, the comptroller of the currently and a key banking regulator.
Although he sought to downplay the importance of his remarks, since he said there were no specific instances of difficulties to which he could point, Heimann had a tough warning.
There is the potential "for serious liquidity problems for some institutions in the coming months," Heimann declared.Specifically, he warned that smaller banks without ready access to money could be squeezed if money market funds begin to drain out substantial deposits. He noted that loan-to-deposit ratios are higher in most small banks than in 1974 and that large banks relying on unused funds from smaller banks may themselves find problems ahead.
It was part of the same message, that the old ball game is over and that more cautious lending policies must be established.
In response to a request by Treasury Secretary G. William Miller, on Monday, the bankers association acted formally today to provide advice on inflation to the federal government in a systematic fashion.
A task force on inflation was established and former First Chicago Corp. Chairman Gaylord Freeman will head the group.
Appointment of the task force was announced by the ABA's incoming president, C. C. Hope Jr., of Charlotte, N.C. Hope is vice chairman of First Union National Bank there and he succeeds John Perkins, the president of Continental Illinois National Bank & Trust Co., of Chicago.