First American Bank of Virginia President Milton L. Drewer Jr. has always been dubious about the advantages of deregulating the financial industry, and now he's downright negative.
All-Savers certificates, NOW accounts and Individual Retirement Accounts "have been of little assistance in increasing deposits," he told shareholders last week, but they have "succeeded significantly in increasing our cost of money and the rates we must charge for our loans and services."
Competition among banks, savings and loan associations and money market funds not only drives up interest rates, it drains money out of local communities, Drewer contends.
He said the First American Banks in Virginia alone are losing $300,000 to $500,000 a day to the booming money market funds that pay even higher interest rates than the new bank accounts.
"The high interest rates that these funds can pay, which banks can not pay because of restrictive regulations, has caused more than $200 billion to be siphoned out of financial institutions," Drewer said. "Very little of these funds (are) invested in local communities."
Every dollar that goes into a money market fund is a dollar that can't be loaned to a would-be home buyer or a local business. The flows of cash into money funds "take their toll locally in the form of prohibitive loan rates for businesses and individuals," added Drewer.
The problems Drewer is complaining about result from deregulation of the rates banks and other financial institutions can pay and the weakening of barriers to competition between banks and their financial rivals. Ironically, he suggests, the solution to the problem of deregulation is more deregulation.
Completing the deregulation process as quickly as possible would eliminate inequities created by creeping deregulation and move the financial industry immediately into a new era. Even if that happens, adds Drewer, "coping with the future will be different, difficult and challenging."
Drewer's comments made at last week's First American stockholders meeting are important for two reasons.
First, he's more critical than most bankers of all the so-called benefits that deregulation has brought. Consumers are enthusiastic about the high rates they can earn from money funds and other unregulated accounts, but few bankers stop to point out that those rates are the reason car loans and mortgages are so expensive that people have stopped buying.
Second, Drewer's remarks indicate business as usual at First American of Virginia despite the purchase of its parent company, Financial General Bankshares Inc., by Middle Eastern investors. The First American banks are now the first Arab-owned interstate bank holding company in the United States.
But the boards of First American of Virginia--and the other local Financial General Banks scattered from Winchester to the Eastern Shore--are still made up of the same local business people who were there before.
Today's Washington Business cover story by Carole Shifrin gives the big picture on how the Washington area tourism trade is holding up in the recession, but to see what the local hotels are doing to compete for business you ought to read the newsletter put out by the Sheraton Washington.
If you thought all conventions are alike--only the name tags are changed to protect the innocent--take heed of the "personal touch" the Sheraton is touting. It's called "creative themed check ins" and made its debut recently at a big medical meeting.
When the doctors pulled up to the hotel they found it had been renamed "Sheraton Memorial" to make them feel right at home, explained Sheraton PR person Mary Jan Enterkin.
"Stepping through the front door, delegates were greeted by models proffering Bloody Marys hygienically poured from intravenous bags set along a hospital gurney doubling as a portable bar. Wooden tongue depressors replaced swizzle sticks."
The Sheraton staff was decked out in green surgical scrub suits, pink candystriper outfits and starched white nurses uniforms to check in guests in temporary "examining rooms."
A pill cup full of M&Ms was given each guest along with advice to "take two before retiring"; VIPs were whisked to their rooms in wheel chairs, and the hotel Muzak system played "medical music," including the themes from Dr. Kildare, Ben Casey, Dr. Zhivago and M*A*S*H.
To complete the cutesy check-in, the Sheraton newsletter tells us, the hotel lobbies were decorated with "back-lighted X-rays, crutches and flower arrangements of apples, 'mums and snapdragons in brightly colored plastic bed pans."
Thank goodness it wasn't an undertakers's convention.