he second anniversary of "Volcker's Disease" was celebrated downtown today, but Federal Reserve Board Chairman Paul Volcker didn't show up. He was scheduled to arrive here tonight.
It was two years ago that the nation's central bank, in a dramatic change of policy that was designed to bring inflation under control and strengthen the then-sagging dollar, placed new emphasis on money-supply control and allowed interest rates to float freely.
Leading bankers predicted that a new era of extremely volatile and high, short-term interest rates would follow. These predictions turned out to be correct. And partly because record U.S. interest rates have attracted foreign investment, the dollar has become an extremely strong currency--a fact often overlooked when assessments are made now of Federal Reserve policies.
But the dollar's strength overseas is not an understandable bread-and-butter issue for many Americans. Everyone is feeling the pinch of interest rates. Even some presidents of the nation's banks, here for the annual convention of the American Bankers Association, have recited a growing mood of revolt from their own "Main Street" customers.
It was not the bankers who staged a "memorial service" for the Oct. 6, 1979, decisions of the Federal Reserve. Chicago activist Gale Cincotta, who shows up at bankers' conventions frequently to protest on behalf of her National People's Action Coalition, was in charge. Cincotta charged that the fight against inflation appears to be working slowly, but it is an unfair war because big business is not on the front lines while low-income and moderate-income families, small-businessmen and the family farm "are dying."
"The American dream has become a victim of Volcker's disease. . . We are holding these wakes not to mourn but to organize" behind such proposals as creation of a pool of low-interest mortgage money, she said.
But the gloom over the state of the economy was not confined to the poor. Indeed, if there is any pervasive mood evident from talks with bank officers during the past few days, it is one of very serious frustration with the rapid pace of change in their industry and the absence of any certainty about economic trends. "Pessimistic," said Riggs National Bank Chairman Vincent Burke Jr., when asked to assess the attitude of his colleagues.
"The mood is not that of past conventions. . . . When you say 'good morning' it might be the most cheerful comment," said Walter Hoadley, a retired Bank of America executive who is now at Stanford University. He summed up the feelings of many bankers, especially when they think about new competition for financial services, as "half fear, half panic."
Marlin Jackson, president of Security Bank in Paragould, Ark., received perhaps the most enthusiastic audience reaction this week when he expressed some frustrations of executives of smaller banks competing for deposits and credit services against money market mutual funds or such nonbanking firms as American Express Co., which recently acquired the big Wall Street securities firm of Shearson Loeb Rhoades.
"The fundamental concerns of the community banks . . . are the needs of a man and wife to buy a home, of the family-owned business," he said. But, he asked, how is American Express, which is taking funds from the Paragould community, going to help out with these problems? "Are we really looking at the genuine needs of all Americans . . . or at the needs of the affluent" by permitting financial giants to pull money out of the American "heartland," he continued.
"The grass roots needs are not being communicated to Washington or to Wall Street. . . . No money market fund has been required to file a community reinvestment statement," Jackson added, referring to forms that banks must complete regularly and file with federal regulators spelling out the extent of their funds loaned in the community--a mandate that unregulated money market funds do not face.
The Arkansas banker was responding specifically to a speech by American Express Chairman James Robinson III, who came to the convention with a prepared speech conceding that "some suggest that American Express should be likened to a wolf in sheep's clothing."
Robinson deleted that line when he actually spoke, suggesting only that a question had been raised as to whether his company is a friend or foe. "We may very well be the best friend you have," he declared. "Successful financial institutions will be those that focus more on how to increase their competitive capabilities and their comparative marketing advantages, rather than waste time longing for the good old days."
The bankers reacted politely but showed much more enthusiasm when other bankers started talking the common buzzwords that have become a hallmark of this convention--"a level playing field." This phrase is being used over and over by bankers to emphasize what they say is a willingness to open up their business to all comers, provided that the same restraints on activities and the same freedom to establish interest rates or new business ventures applies across the board.
"I resent that we couldn't make a deal with Crocker," said Chase Manhattan Chairman Willard Butcher, noting that England's Midland Bank has been successful in its offer to acquire control of Crocker National Corp., the parent firm of California's fourth-largest bank.
Midland is buying 51 percent of Crocker for $820 million in the biggest takeover in California's history, and Butcher noted that it was possible because foreign banks do not have to follow the same rules as U.S. banks in doing business in this country, such as those that prohibit interstate branching.
The main problem American bankers face in trying to compete with a Midland or an American Express is developing a consensus on how best to go about it. Currently, the banking industry is badly split between the largest and smallest institutions.