Banking institutions soon may be differentiated by their size rather then their charters, according to industry forecasters at the midyear meeting of the National Association of Mutual Savings Banks.
By the end of the decade, large commercial banks well may offer the same services as large thrift institutions, while small savings and loans may bear a closer resemblance to community banks than to their giant colleagues, they said.
Should such a metamorphosis occur, it would come as a result of high, volatile interest rates over a protracted period and legislation enacted in part to counteract those trends. When the Depository Institutions Deregulation and Monetary Control Act of 1980 was drafted in an effort to even out competition, there were predictions of a "homogenized" banking system in which every institution would have virtually the same powers. During the debate that preceded its passage, small S&Ls argued in vain they did not wish to deal in Eurodollars or credit cards; local banks feared competition from money center banks.
The practical effect, experts said last week, will be specialization by size, not type. Carter H. Golembe, a Washington consultant, predicted that the term "commercial" bank might cease to exist except for the 1,500 or so wholesale banks with more than $100 million in assets. The 13,000 smaller banks would be known as community banks.
Leon Kendall, an expert on the savings and loan industry, similarly forecast a division in that industry according to size, geography and competition. The classical S&L will continue to take in savings deposits and make local home loans in areas where funds are plentiful and it has a monopoly, he said. Another form would be the real estate mortgage association, specializing in residential, commercial and industrial mortgages nationwide and financed by the sale of mortgage-backed securities rather than deposits. A third variation would be the S&L-turned-family-financial-center, the equivalent of a consumer bank, Kendall predicted.
As a group, mutual savings banks are the smallest segment of the industry, operating in only 17 states. Their earnings situation has been particularly acute this last year, because most of them are located in the Northeast, where competition is keen and funds scarce.
This year will mark the first time in 35 years the industry as a whole has operated in the red. NAMSB chief economist George Hanc estimates the industry will have a savings outflow of $4.5 billion this year and that it will lose 15 cents for every $100 in loans. More red ink is projected next year.
Following a disastrous end of 1979 and beginning of 1980, the savings banks' trade association appointed a committee to explore long-term strategies to assure the industry's survival during the decade. While some needs are common to all savings banks, such as the need for more capital through deposits or other means, the committee suggested five options individual savings banks could adopt, depending on their financial situation, expertise and competition.
In ascending order of risk, sophistication and costs, they are: the traditional savings banks, the full-service family bank, the mortgage banking institution, the full-service bank (for business) and the financial institutions conglomerate.
Becoming a full-service family bank, for example, would allow a savings bank to compete more effectively with small commercial banks and with savings and loan associations that have chosen to go that route, too. Becoming a full service bank means focusing on the financial needs of smaller and intermediate-size companies.
The fifth strategy would be to create a savings-bank-controlled financial conglomerate that might include mortgage banking companies, consumer and business finance companies, savings and loans, insurance companies and brokerage firms. This last option, which would require extensive changes in the legal authority of savings banks, would put savings banks in direct competition with such industry giants as Merrill Lynch.
The committee did not favor one recommendation over another, leaving the decision to the individual savings bank, depending on its particular situation. d