Would A Large Bank Be Buying Small?

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The restrictive laws that the courts are interpreting are mainly a legacy of the bank failures of the 1930s. The current high rate of bank failure — higher than at any time since the Great Depression — has made legislators afraid of remove the restrictions. While their ...
... legislative timidity is understandable, it is also mistaken. One reason so many American banks are getting into trouble is precisely that the old restrictions make it hard for them to build a domestic base large and strong enough to support their activities in today's telecommunicating round-the-clock, around- the- world financial markets. In trying to escape from this restriction, banks are taking enormous, and what should be unnecessary, risks. For example, would a large bank be buying small, failed savings banks at inflated prices if federal law and states regulations permitted that bank to explain instead through the acquisition financially healthy banks in the region? Of course not.

The solution is clear. American banks will be sounder when they are not geographically limited. The House of Representatives' banking committee has shown part of the way forward by recommending commonsensical, though limited, legislation for a five-year transition to nationwide banking. This would give regional banks time to group together to form counterweights to the big money-center banks. Without this breathing space the big money-center banks might soon extend across the country to develop. But any such legislation should be regarded as only a way station on the road towards a complete examination of American's suitable banking legislation.