For the first time one of the New York banks -- the biggest of them -- is about to go into business in Washington. As soon as it receives a final approval from the federal regulators, Citicorp is to take over National Permanent Bank, a local savings bank that has fallen into serious trouble, and run it as a subsidiary. That can only be good for the banking business and its customers in this region.
The sale represents another erosion of the legal barrier against interstate banking, an impediment that protects very little but inefficient banking practices. In this case, the federal regulators' urgent need to dispose of failing thrift institutions coincides with Citicorp's strategy. It is already operating in several other states, including Maryland. In the 1970s the force for growth at Citicorp was international banking, but in this decade it is turning out to be consumer banking. That's the attraction of this area, with its high incomes and brisk demand for mortgages and car loans.
As for the regulators, they are struggling to prevent the collapsing thrifts from bankrupting the federal deposit insurance fund. National Permanent's liabilities are greater than its assets by about $80 million. If the Federal Home Loan Bank Board simply closed National Permanent down, that $80 million would have to be paid by deposit insurance. Instead, the bank board will pay $51.8 million to Citicorp, which will then put $90 million into the business to bring its capital up to the required level. That protects the depositors while diminishing the exposure of the insurance fund -- a satisfactory solution all around.
There's a long tradition of populist anxiety about letting the big New York banks cross state borders. The New Yorkers will take Washington's deposits and siphon them off to other parts of the country, the accusation goes, and they will blight competition here. The reality is more likely to be the opposite. Citicorp is as interested in lending here as it is in borrowing. As for competition, the presence of the New York banks does not seem to have killed it in New York City -- nor are they going to kill it here.
The only really troubling aspect of Citicorp's arrival is the makeshift and patchwork process by which the reorganization of the American banking industry is going forward. Ideally, new rules for interstate banking ought to be clearly established -- along with many other reforms -- in comprehensive legislation. But the industry is deeply divided, and the congressional banking committees show no inclination whatever to step into that hornet's nest. The circumstances that bring Citicorp to town are a second-best way to do it -- but in this case, second-best is working out not at all badly.