Washington's banks are doing quite well these days. There is a "problem," as outlined in a report by the Greater Washington Research Center, "Compeial Services in the Washington Economy," but it rests not with the banks. It rests with the environment in which the banks operate. While much progress is being made in developing a vibrant private sector, the District of Columbia in other respects continues to suffer from its legacy as the federal city: the lack of a private sector in which capital is created, numerous political jurisdictions, and a local government that has only recently been responsible for its own fate.
I think the economic future of the District and its financial institutions is quite bright. Fortunately, the mayor and other local government officials, plus a host of private-sector organizations such as the Greater Washington Board of Trade, the Federal City Council and the D.C. Bankers Association have been hard at work in developing the city economy. Such development will occur, however, only as the District comes to be viewed as the attractive, exciting "center city" of this truly dynamic region.
As a trustee of the Greater Washington Research Center and one who was interviewed for its report, I am somewhat inhibited in challenging the specifics of "Competition Comes to Town." Nevertheless, the study relies heavily on data relating to Standard Metropolitan Statistical Areas and assets of bank holding companies. It concludes that Baltimore and Richmond institutions have outperformed those based in Washington. The reason is obvious, for those institutions enjoying statewide banking have a great advantage: Washington banks are limited to the District's 63 square miles, much of which is a national park!
Richmond and Baltimore are headquarters cities of statewide institutions, many of which owe their very success to the business they enjoy in the Washington suburbs. The statistics cry out for regional interstate banking -- and soon, if any Washington-headquartered institution is to become large enough through area mergers to survive in our rapidly changing industry. The alternative is for our successful, yet relatively small, financial industry to be absorbed by holding companies outside of the District. Such a development would deprive the area of local employment, as well as a banking industry fully sensitive to local needs.
The center's report outlines three strategic options for the future: 1) developing Washington as an international financial center; 2) preserving the old regulatory structure; and 3) moving toward limited interstate banking accompanied by additional regulation of the local banking system. The report settles on the third, somewhat biased alternative. Aside from the clear legal issues presented by these new restrictions, they most certainly would prove unacceptable to other states in the proposed region. Also, additional regulation of Washington area banks on numerous consumer issues, as important as they may be, would only serve to keep the area at a competitive disadvantage.
Washington already has been held back by repressive local legislation, for example, which has resulted in higher wage rates and operating costs, an unrealistic usury law that was only repealed in 1983 and a bureaucratic maze of local and federal regulations that confound downtown developers. Admittedly, much of the problem dates from past governmental practices, and our maturing local government is today recognizing the need to encourage the private sector.
In dismissing Washington's ability to compete successfully as an international business center, the report points to Baltimore as the established international city for the region. As the chairman of a bank operating in both cities, and as co-chairman of the Washington/Baltimore Regional Association, I see the primary business objectives of the two cities as quite complementary, with Washington emerging as the center for international financial services and the capital of a dynamic, Middle Atlantic region.
Surely a major challenge exists for the banking industry in providing services for all elements of our society. But re-regulation cannot accomplish that objective short of a totally controlled system whereby banks are declared "public utilities." Corporate social responsibility is not legislated; rather, it flows naturally from successful, well-managed companies. For Washington to enjoy such success and such service, the financial industry must be expanded throughout the region. Ultimately, our city and our region will be recognized as one of the most important business centers in the world, and we can aspire to be the international financial capital for which Washington is so well positioned.