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Many small businesses fear that branches of big chains will take local savings deposits but not lend them back to firms in the community. "In rural Minnesota, many banks lend money on a handshake," says Daryl Erdman, the Minnesota supermarket owner. "Even if a guy's financial statement is a mess, the banker knows he's good for it. What happens if Chase Manhattan puts a brand-new East Coast M.B. A. in here?"
Many regional banks like M & T of Buffalo hope to kindle customer loyalty by offering some of the personal touches that most big-city institutions have left behind. In the summer and fall, M & T stages daily concerts and fashion shows in a downtown plaza across from its main office. One M & T teller at a drive-up window hands out dog biscuits to customers with pets in their cars. The bank tries to make elderly customers feel at home by serving coffee and doughnuts and providing low-cost checking accounts with reassuring names like Worry Free and Pay as You Go.
The final responsibility for insuring the stability of the American banking system rests with federal regulators. As the industry's troubles have increased, regulators have begun cracking down harder. They are beginning to expect the unexpected. Says James Boland, deputy comptroller of the currency: "It's always the dog you don't see that bites you. We're not out of trouble yet because banks always tend to lag behind the economy." The comptroller's office is now examining the books of large banks two or three times a year, instead of just once. As a further incentive for prudence, the FDlC's Isaac has proposed that the premiums banks pay to the agency for deposit insurance should increase according to the proportion of their loans that are risky.
Nonetheless, some experts question the ability of regulators to keep up with the field they are supposed to be watching. Concedes a former FDIC official: "Getting good people and keeping them is very hard to do. They really are not compensated very well for their talents." The problem is made tougher because responsibility for overseeing the country's banks is shared by six federal and 50 state agencies.
The recent string of bank failures has raised worries about whether the $17 billion in the FDlC's insurance fund is enough to protect the banking system and depositors. Officials contend that the regulators have enough money to get the job done. Says FDIC Chair man Isaac: "We have the capacity, along with the Federal Reserve, to deal with any scenario you can imagine." Some bankers have already made strategic changes that may help keep them profitable in an increasingly competitive market place. Says Manufacturers' McGillicuddy: "When people say the banking industry hasn't responded, it just doesn't square with the facts." Several banks have cautiously narrowed their focus. Manhattan's Bankers Trust ($40 billion), for example, has become one of the most profitable large U.S. banks by dramatically curtailing its consumer business in order to devote itself to merchant banking, a step that involved shedding more than 100 of its branches. Ben Love, chairman of Houston's Texas Commerce Bancshares