How will large bank operations be affected if interstate branching regulations are loosened?

I THINK THERE ARE a number of issues that become critical even at the superregional level. First you have to learn to live with broader geographic dispersion. You have the opportunity to build scale and reduce operating costs on a unit basis. You have issues around product standardization, which may be different than what you deal with as a superregional. If it's the difference between Florida and Georgia, you may want standard products. If it' s the difference between South Carolina and Oregon, it may be less important. You may make decisions not to standardize quite that same way on a superregional basis.

Technology will be important too. Overcoming geographic dispersion will mean relying more on networking and the ability to inexpensively move transactions all across the country. The way you organize these networks -- whether it be having operations centers in different locations and simply one national center -- will become a strategic issue.

Also, with people spread far apart, technologies like video conferencing and work group computing will become increasingly important.

TWO THINGS WILL HAPPEN. The bank's back-end system will become more than core accounting. It will become a decision support system that allows a bank to operate more profitably and make better decisions on how it wants to reach customers. Banks will also have to change front-end delivery systems to link them with these back-end systems. The key is to make sure that front-end points -- where the customer is touched -- tie into the back end.

Banks will face many questions such as how are we going to understand the profitability of our organization, both from a customer and product perspective? What are the transaction patterns? Who are the new customers that we want to go after? If the customer profitability picture is this way and product profitability is this way, what is the right channel to deliver or engage that customer? On the back end, we have to understand the performance of our entire bank. How is this region performing? How is this branch performing? Are we meeting our figures? On top of that, how do I put marketing programs together that hit my target ?

THERE IS CERTAINLY going to be greater efficiency due to consolidation of operations. There will be an opportunity to evaluate reengineering of that environment.

Banks will enhance productivity and efficiency and [the operations area is] a key area they can do it in. I think there is an opportunity to bring in new technology. When you have situations like that, it gives you a chance to evaluate how you were doing it before.

IF THE LEGISLATION is passed along the lines as it is currently proposed, it will formalize what has really been evolving. We have interstate banking. What the new legislation will permit overtime is interstate branching. Fmm a bank point of view, it will help us to really avoid artificial state boundaries and from a customer point of view, it will make banking much more convenient.

For example, in the Philadelphia metropolitan area, we have a lot of customers who live in southern New Jersey and who commute into Philadelphia to work. At the moment, they need to have checking accounts near their home as well as near their offices. It doesn't make any sense to them and it really isn't serving any productive purpose at all. From our point of view, the legislation would help us be more efficient and serve them better. It will serve banks in terms of having more efficient back offices.

I also think this kind of legislation is important in hopefully getting Congress to recognize that there is a need to modernize legislation. Technology has changed so much since the banking laws were enacted in the '30s. With the telephone, computer, and interactive video, physical branch locations are not the real delivery systems of the future. Congress is merely just catching up in some way with what has been changing in interstate banking for years. They've got to keep modernizing the laws because not only will it help banks to operate better but more important, it will help consumers.

FIRST OF ALL, there would be no need for a holding company to have separate charters in different states. Therefore a lot of corporate overhead would be eliminated. Also, you'd be able to consolidate your charter under one charter. You' d have a single charter with -- theoretically -- a single regulator.

Similarly, holding companies that have had several smaller institutions in several states would be able to combine their institutions into one larger bank. As a consequence, they'd have a higher legal lending limit. Another element to consider is the elimination of the Bank Holding Company Act section 23-A, a law that deals with problems of passing assets between affiliated institutions. The institution would be a single institution and avoid those types of problems. You'd be able to accept deposits across state lines, which is now not permitted.

There are, of course, some drawbacks. First of all, the bank would be submitting to jurisdiction in every state where it is doing business and that can occasionally cause problems. For example, you might find yourself fighting lawsuits in remote areas.

THE PRIMARY IMPACT on bank operations would be an opportunity and challenge to standardize delivery systems across the country such that someone walking in a branch anywhere will see the same set of services delivered in the sameway.

Today banks continue to operate primarily as stand-alone operations. Very few that operate in multiple states are delivering services with a common set of systems and products. That's the immediate challenge that comes to bear.

There will potentially be major changes in the way that cash management services are delivered. With interstate banking, the need to have multiple lockboxes in multiple banks will be eliminated. There will be capture points and deposit points around the country that collect funds going into a common demand deposit account system. With the banks offering a more robust set of services, the cost to corporations will be reduced. Efficiencies will also potentially be gained in areas primarily relating to the bank's ability to consolidate operations and gain additional economies of scale. The check processing infrastructure will be consolidated. There will be some opportunities to consolidate operational suites and collapse certain board structures.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER