SEARS, ROEBUCK and Company says that it intends to buy a small bank in Delaware as the next step in broadening its financial services business. It's the latest move in a rapid and chaotic process of banking deregulation that is taking place in the absence of legislation, through the ingenious exploitation of loopholes in the present laws. Under Sears' ownership, the Delaware bank will no longer make commercial loans, a change placing it and its owner outside the customary reach of the banking laws. Sears is developing an extensive line of financial services -- in securities, insurance and real estate -- much broader than those a bank can offer. In California, where it owns a savings and loan company, it is taking deposits as well. In Delaware, and perhaps elsewhere, the converted bank will be the vehicle.
The idea here, Sears says, is to provide its customers with a financial supermarket that is convenient, efficient and inexpensive. But there's one more thing that the customer needs, and that's the assurance that those deposits are safe. Sears replies that its resources are deeper and more stable than those of most banks, and that's true. But if Sears uses the deposits in its own banking system to support its other operations -- for example, to fund installment sales in its stores -- it will be engaging in a degree of financial incest that regulators have generally considered to be unwise. The gigantic scale of the enterprise doubtless makes Sears a sound place to leave your money. But what about the smaller and less massively ballasted companies that pursue the same route into consumer banking? Other merchandising companies are already moving in the same direction, and precedents set for Sears will have to apply to others too.
On the day that Sears announced its intention to buy the bank, the chairman of the Federal Deposit Insurance Corporation predicted that a high number of banks, perhaps 75 of them, will fail this year and as many next year. It is not a serene period in the banking industry. Sears presumably has the experience to manage safely the structure that it is constructing. But Sears is in many respects unique.
Sears is gambling that, if it acts quickly and aggressively, it can force any eventual legislation to conform to its operations rather than the other way around. That's entirely possible. Earlier this year Congress was working on a bill that would have barred Sears from banking altogether, but the House and Senate were unable to reconcile their different versions of it. Sears is moving rapidly to seize its opportunity. But whether it serves the public interest to have department stores taking their customers' deposits, trading stocks for them and writing their insurance is quite another question.