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Sam C. Smith, 33, president of the $ 15 million Bartow County Bank in Cartersville, Ga., says he is not concerned that big money managers will take away his business. Like many small, rural bankers, Smith borrows low and lends low to customers he knows. He can keep his rate below the rate of other banks because 35% of his deposits are in non-interest-bearing checking accounts, and 10% are in 5¼%-interest passbook accounts. Last winter another nearby bank installed an automated-teller machine, but Smith notes that it is hardly ever used. Says he: "What all this is telling me is that you can do a lot of things to push around figures, but you can't change human nature that easily."
Most banks remain relatively stable because of their large amount of business lending, which is normally tied to the fluctuating prime rate. But savings and loans and other institutions specializing in fixed-rate mortgages are in serious trouble. Two-thirds of all home loans on the books of S and Ls carry rates of 10% or less, though the thrifts have to pay 15% and more for new money. Says Analyst Gray: "In New York the thrifts are 20 feet under water; in other states it might be only five feet. But they're all under water."
Congress and the financial community are currently considering a variety of ways to help thrift institutions. The result, in any case, will certainly be a reduction in their number during the next few years. The lucky savings and loans may be like the Count of Sieyes, who, when asked what he did during the French Revolution's Reign of Terror, gave the legendary reply: "I survived."
Once freed from the burden of regulations, the more prosperous thrift institutions are likely to emerge as full-service family financial centers, offering everything from money-market funds to credit cards. The best-run savings and loan associations are financially very sound and will prosper in the new, freer money market. Says Richard H. Deihl, president of Home Savings & Loan in Los Angeles, the largest in the U.S.: "There will always be room for a variety of financial institutions. Some will make loans to industrialize the forests of Brazil; others will lend money to people to buy houses."
One of the cornerstones of personal financial planning used to be a life insurance policy, but it, too, is changing under the battering of inflation. The meager 4% annual interest such policies can pay is even lower than the 5¼% earned on a bank savings account. Millions of Americans have now shied away from so-called whole life policies that combine insurance with savings. Instead, they are taking out less expensive term policies that have no investment value and provide death benefits for only a limited time.
In addition, consumers have discovered that they can recover part of the money they have spent on life insurance in the past by borrowing against the cash value of those policies at bargain interest rates as low as 5%. The borrowed funds can then be reinvested in a money-market fund, Treasury bills or six-month bank certificates at far higher yields. The amount of funds borrowed against old insurance policies has now swelled to $43 billion.