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Many bankers argue, however, that they will not be able to survive the tough new competition from other financial institutions unless the Government lifts the regulations that limit the amount of interest they can pay and the areas where they can do business. Says Bruce M. Rockwell, chairman of the Colorado National Bank in Denver: "If the banks are not given more freedom, there will be a serious erosion in the industry. We can't go on this way without major consequences."
The Depository Institutions Deregulation and Monetary Control Act of 1980 has already started removing some of these constraints. During the next five years, the ceilings on interest that banks can pay on savings accounts will be abolished. The act has also permitted the nationwide establishment this year of NOW accounts, which pay 5¼% interest on checking. Some $48.5 billion has been deposited in the NOW accounts since Dec. 31,1980.
Even before these reforms, banks were trying to attract new savers with a variety of high-yielding time deposits and money-market certificates. These give much more interest than a passbook account; last week a six-month certificate paid 15.9%. But they usually require that the depositor keep his money in an account for six months or longer in order to earn the full interest.
A more controversial proposal would permit banks and thrift institutions to do business in more than one state. The U.S. has more banks (14,500) than all the rest of the world combined. The tradition of many small, local banks goes back to frontier days, when a bank was one of the pillars of a new community. Bankers say, though, that regulations limiting them to one state are now an anachronism.
Citibank is already preparing for nationwide banking. It has put its VISA and MasterCard into the pockets of 5 million customers throughout the U.S. and is moving its credit-card operation to Sioux Falls, S. Dak., where it is free from any restrictions on what interest rate it can charge. Regional banks, such as North Carolina National, and Citizens & Southern in Atlanta, also want the right to expand across state boundaries and are promoting a law that would permit them to do banking in nearby states.
Many banks, however, do not want outsiders in their markets. Says Charles N. Brewer, president of Dallas' Reunion Bank: "When the large East and West Coast banks get down here, they might drain off our resources to make their international loans."
The fear that the giants will put all small banks out of business may be unfounded. Small bankers in New York State were troubled in 1976, when New York City banks were allowed to establish branches upstate. But most of the small banks easily stood up to the guys from the big city because they knew their community and clients far better than someone from outside. In Sioux Falls, Citibank will offer other banking services besides its credit cards, but the local First National Bank is not worried, even though it has assets of only $172 million, compared with Citibank's $116.5 billion. First National Chairman William S. Baker III says confidently, "The ace up our sleeve is customer loyalty, and we have greater flexibility than the big corporate banks."