Even as banking regulators near the end of the laborious process of interest-rate "deregulation"--eliminating the ceilings on interest rates that banks and savings institutions can pay for deposits--they are prodding both Congress and the banks to push for further loosening of restrictions on the banking business.
Comptroller of the Currency C. Todd Conover recently told a group of bankers that deregulation of the banking industry has three cornerstones--interest rates, products and geographical barriers--and there has been significant progress only on interest rates.
Conover told the bankers, meeting in Honolulu, that if they want further deregulation they will have to persuade Congress. Although Senate Banking Committee Chairman Jake Garn (R-Utah) is receptive to some further loosening of federal restrictions, House Banking Committee Chairman Fernand J. St Germain (D-R.I.) seems less so.
The Federal Reserve Board, one of three federal bank regulatory agencies, also is less willing to push for further expansion in bank activities than is either Conover or the Federal Deposit Insurance Corp.
Fed Chairman Paul A. Volcker did sign off on an administration bill that would allow bank companies to set up separate subsidiaries, insulated from the bank itself, to engage in new activities such as insurance underwriting and real estate ventures.
But the bill has gone nowhere in Congress because of powerful opposition from, among others, independent insurance agents and the securities industry.
FDIC Chairman William M. Isaac is concerned that if Congress doesn't act the states will write their own new laws permitting banks to engage in a wide variety of new activities. Many states are rewriting their laws to let out-of-state banks set up new subsidiaries. These subsidiaries will be permitted to engage in activities forbidden to their parent banks under federal laws.
Isaac is in favor of giving banks new powers, but has said he is worried about a helter-skelter, state-by-state process. Isaac has threatened to use his authority as deposit insurer, rather than his authority as bank regulator, to head off the states.
The regulatory side of Isaac's agency might not be able to stop a state-chartered bank from opening an insurance company, but the insurance side of his agency could deny the bank deposit insurance. Only a handful of banks today operate without FDIC insurance, which guarantees a customer full repayment of his funds up to $100,000 in the event of a bank failure.
There are three federal bank supervisors; there is only one federal insurance agency.
Conover told the bankers that some changes in traditional federal laws prohibit the nation's 15,000 banks from operating outside the state in which they are headquartered, but he said those changes are the result of the problems regulators face and are not part of a well-thought-out approach.
The biggest interstate banking step was taken last summer when the nation's largest bank, San Francisco's Bank of America, with $120 billion in assets, was permitted to buy the failing Seattle First National. Seafirst, among the nation's 20 biggest banks, was a victim of bad energy loans it purchased from Oklahoma's Penn Square National Bank, which failed in July, 1982.
Except for situations like Seafirst's, in which a failing bank is so big that regulators are forced to look outside the state for a rescuer, interstate banking is nonexistent, Conover said.
Both Conover and FDIC chairman Isaac believe that banks must be permitted to engage in new types of business if they are to remain healthy. With low-cost deposits a thing of the past, and brokerage firms, insurance companies and other so-called financial services companies venturing into the traditional banking field, the regulators feel that banks will be hurt unless they, too, are permitted to venture farther afield.