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Some bankers warn that leaving cash in money-market funds is dangerous because, unlike savings accounts, they are not insured by the Federal Government. In fact, money-market funds are quite safe. Their portfolios are usually due to mature in less than one month and include issues from some of the soundest corporations and the Federal Government. Says William Donoghue, author of a bestselling guide to money markets: "Probably the worst possible loss in the highly unlikely event of a problem with a money fund would be 1%. With doubledigit inflation, you've got a guaranteed loss of at least 5% in your passbook. So what are you worried about?"
Many other financial institutions are also moving into areas that once were the private domain of banks and thrifts. Sears, Roebuck, the largest retailer in the U.S., has become one of the largest lenders. The company has more than $7 billion in outstanding consumer credit, and it plans to move even more deeply into finance. It already owns the Allstate Insurance Co., and it has been buying small S and Ls in California to form the Allstate Savings & Loan, which is now the tenth largest in the state, with assets of $3 billion. Within the next few years, it also wants to offer customers tax-counseling services like those of H & R Block, as well as money-market funds and mutual stock funds, as Merrill Lynch does. Says Preston Martin, chairman of Seraco, the Sears real estate financial division: "In order to compete in the '80s, we're going to have to provide all the financial services our customers need."
The automobile industry has long helped consumers bypass the banks by lending money to car buyers through General Motors Acceptance Corp. and the other corporate credit companies. Now others are emulating them. General Electric has become the largest issuer of loans for the purchase of mobile homes. And firms are being established to provide other banking services. Comdata Network, a Nashville firm, has set up a nationwide money transfer service at most gambling casinos and gas stations along interstate highways.
By the end of the decade, banks, savings and loans, insurance companies, investment firms and credit cards will have gone through so wide-ranging a transformation that they will be hard to recognize. Says Merrill Lynch Chairman Roger E. Birk: "Sooner or later, somebody may have to redefine the word banking."
Whether or not they change their names, banks will be under tremendous pressure during the next few years. While a majority of individuals and businesses still do more of their financial transactions at a bank than at any other money institution, the role of banks is quickly eroding. About 30 years ago, banks held 57% of American financial assets; now they hold 37%. Ten years ago, six of the ten largest banks in the world were American. Only the Citibank and Bank of America companies are still among the biggest.