Leaders of two of the nation's largest financial lobbying groups disclosed today that they had opened negotiations designed to develop legislation to stem the flow of consumer dollars from banks and savings and loans to money market funds.
Those negotiations were revealed by C. C. Hope Jr., president of the American Bankers Association, and by Edwin B. Brooks, president of the United States League of Savings Associations.
Bankers view the talks between the groups as unique because the two are frequently both commercial competitors and political rivals on issues facing the financial industry.
"This is the first time we've decided to move together on legislation," Hope said in an interview. "The S&Ls, the credit unions, the savings banks and the banks are all regulated industries. Now we have coming at us from all sides nonregulated people."
The two association executives were among about 175 participants at the opening session of a two-day conference here on banking in the 1980s sponsored by Virginia Commonwealth University.
The program today featured speeches by banking executives and focused on the difficult times they face. Much of the discussion covered the loss of savings dollars from banks and S&Ls to money market mutual funds, which are virtually unregulated.
Money market mutual funds invest in securities that are sensitive to short-term interest rates.
Sales volume of those investment funds, which can offer savers interest rates now approaching 15 percent -- more than double what most conventional banking institutions offer -- has skyrocketed from about $3 billion a year and a half ago to about $60 billion today. Just last month money market funds grew by $21 billion, Hope said.
"It's imperative that we get a handle on this," Hope declared. These funds have no "insurance, no rate ceilings, no early-withdrawal regulations, no geographic boundaries and no social requirements," he argued.
"If we are to be realists, the regulated industries need to make certain that we work together with the Congress to level out the playing field," he said.
These themes -- the ability of brokerage firms and even retail stores to offer what are essentially banking services, and the overall decline of savings to a record low of 3.3 percent of income -- was repeated throughout the conference.
But participants predicted that a House-Senate conference agreement last week on a banking deregulation bill could signal the beginning of a new era for the industry.
Frederick Deane, chairman of the Bank of Virginia, saw the need to virtually wipe clean the slate of banking regulations. Deane stressed his view on a need to end usury ceilings and to put constraints on money market funds.
"We need to press in every possible way to come up with an environment that makes it possible for the banking industry to approach that playing field on an equal basis, not only with the money market funds, but with the Sears and the Penneys," Deane said.
Deane also warned that, with regulatory change in the offing, bankers should be prepared for a merging of a variety of financial institutions.
"Banks and S&Ls are going to look so much alike that we may in fact join together and be acquired by each other here and there" he said, predicting a steep decline in the current figure of 42,000 banks.
"Let's hope we can cooperate with other people," he added. He predicted that officials of banks, S&Ls and credit unions will not represent three distinct industries much longer. "It won't be long before this homogenization takes place," he said.
The other dominant theme of today's conference session was the nation's spiraling inflation rate and the coming economic policy announcements by the Carter administration. Hope predicted that the administration soon will announce some form of credit controls but called such a program a stop-gap measure. "When the lid comes off, credit will explode again," he said.
Hope said there are few short-term solutions to the inflation problem but urged an immediate federal effort to balance the government budget.
"We must balance the budget immediately and not wait for 1981," he said. Hope added that the government should stimulate private-sector productivity and promote a broader consumer awareness about the value of savings.