PHOENIX - Try though they did, members of the Consumer Bankers Association couldn't escape Washington this week.
Many of this country's most influential retail banking executives got away to Phoenix for the group's annual conference, intending to immerse themselves in technology and other business-strategy concerns that the three-day program had been designed to emphasize.
But with banking reform, Glass-Steagall repeal, and other closely watched legislative proposals hanging in the balance back in the capital, politics was never far from center stage.
On a couple of occasions when political subjects were supposed to come to the fore - after all, lobbying is the core business of the Arlington, Va.-based trade association - they provided some riveting moments of theater. Or comedy.
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Breakfast on Monday had dramatic impact. Carter H. Golembe, the dean of bank management consultants, made a rare speaking appearance, revealing himself as a still-penetrating observer of the Washington scene.
Mr. Golembe, now 71 and head of CHG Consulting Inc. in Delray Beach, Fla., sat alone on a stage for 45 minutes, holding court on the major issues of the day - and of the day 62 years ago when the Glass-Steagall curse was visited upon U.S. commercial banks.
Mr. Golembe relished the opportunity to teach his history lesson one more time in the faint hope of prodding Congress toward a moment of truth.
He regards the law that separates commercial and investment banking as a political accident.
Sen. Carter Glass, an architect of the 1913 law that created the Federal Reserve System, did not want to pin the blame for the Great Depression on the central bank's monetary-policy missteps, Mr. Golembe said. So the senator found a scapegoat, the consultant said: alleged conflicts of interest between the two forms of banking at such institutions as First National City Bank and Chase Manhattan.
Those and other banks were "exceedingly good" at investment banking, Mr. Golembe said. But when economic expansion and demand for industrial capital returned after World War II, "commercial banking was cut out" by the Glass- Steagall Act "after having had a great deal to do with building the country between 1800 and 1930.
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A further legacy of Glass-Steagall is tension between the Fed and the Treasury. In the current debate between House Banking Committee Chairman Jim Leach, who supports a strong Fed regulatory hand, and Under Secretary of the Treasury John D. Hawke Jr., Mr. Golembe hears echoes of the struggle between Sen. Glass and the commercial banking establishment.
He is also reminded of the recurring regulatory turf battles dating back to the Bank Holding Company Act amendments of 1970, and he wonders if holding companies - an important part of the Fed's purview - will remain relevant as interstate branching and other legal barriers fall.
Pure logic, historical or otherwise, rarely sways Congress, and Mr. Golembe is not optimistic this time. Glass-Steagall "was bad legislation and has done incalculable harm to the country and the industry," he said. "The prospects for reform or repeal do not seem great even when everybody agrees that we need something like reform or repeal."
Meanwhile, the stakes of the Fed-Treasury struggle, over whether the central bank or the Comptroller of the Currency will be the dominant bank regulator, are higher than ever, Mr. Golembe said.
"Fragmented banking and regulatory structures go hand in hand," he said. "You can't have a consolidating banking industry and fragmented regulation. It's not like in the past, when one (agency) could give up a little and still keep a lot."
Ironically, he pointed out, the United States and the European Union are moving concurrently toward a unified retail banking framework, but "Europe has gotten to a single banking market without a political or monetary union or a central bank.
"The U.S. has had political union since the Constitution was ratified, and a single currency since the Civil War, but it lacks the legal framework the Europeans have."
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Comedy was brought into the program by design - and the Washington humorist Mark Russell.
Performing after dinner on Monday, the day of the march on Washington by black men, Mr. Russell risked political incorrectness. "In the spirit of the Million-Man March," he said, 350 white male bankers had convened "in a spirit of atonement, reconciliation, and the right to sell insurance."
Mr. Russell noted that he was to be followed early Tuesday by House Speaker Newt Gingrich, via satellite from the capital, and the supply-side economist Arthur Laffer, live in Phoenix. Mr. Russell pondered that lineup and said, "Russell, Gingrich, and Laffer ... three comedians."
In the morning, word came down the satellite link that Mr. Gingrich had been called away to a meeting and therefore had to cancel his video appearance. That left Mr. Laffer to reach into his bag of wisecracks to compensate for the Gingrich letdown: "Our speaker today needs no introduction. He didn't show up."
Mr. Laffer further cheered the crowd with what he views as compelling logic that a flat tax system will be in place by the year 2000 - including abolition of interest-free bank reserves.
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After taking some lumps in the "$3 teller fee" affair, First Chicago Corp. executive vice president W.G. Jurgensen was relaxed enough to spread some mirth. He said he "got permission from Jay Leno to talk about teller fees."
The head of First Chicago's community banking group said he always expected to be vindicated. The bad press was just that, he said - an oversimplification of a multifaceted repricing designed to align customer transaction patterns with appropriately priced delivery alternatives.
The press didn't report, he said, that First Chicago had surveyed thousands of its customers about balance and fee alternatives, and a large margin preferred a teller fee over higher balance requirements. The $2,500 minimum required for free access to services is seen as reasonable in the Chicago market, he said, and many account balances were raised to that level.
The returns are still being counted, but Mr. Jurgensen said they are "a pot of gold," altering the "profitability skew" in which only 32% of customers made a positive contribution to shareholder wealth. Automated teller machine deposit volumes are up 117%, and the transaction mix of 68% remote and 32% in branches has climbed to 82%-18% since the repricing.
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James M. McCormick, president of First Manhattan Consulting Group, reinforced Mr. Jurgensen's message by discussing customer-knowledge-based management, which includes the intellectual underpinning for the way First Chicago and other clients are changing their pricing structures.
Mr. McCormick decried the "tremendous amount of mythology that is inappropriate for decision-making" on customer preferences, behavior, and profitability. For example, he said, analytical advances are disproving the notion that cross-selling necessarily improves customer profitability, or that long-term relationships tend to be the most profitable.
The banking industry is just beginning to make use of the information systems that will take it to the next level of customer knowledge, Mr. McCormick said.
Given their customer relationships, distribution systems, and product lines, "banks ought to win this game" against nonbank competitors, he said. But the banks "need a better foundation" to keep their best customers from being lured away, and pricing that maximizes the profitability from all market segments.
"Hopefully, in five or six years we will be talking about those who won the way we now talk about the people who 'got it' (about the power of customer information) in the credit card world 10 years ago," the consultant said.
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For a speech on home banking, Consumer Bankers Association planners had signed up Intuit Inc. chairman Scott Cook. He had to back out and was replaced by Paul Harrison, president of Meca Software Inc., the personal finance software competitor owned by BankAmerica Corp. and NationsBank Corp.
Mr. Harrison urged bankers to think in terms of "cyberbranches" - computer-based equivalents of physical branches "that banks control and provide an electronic link to their customers." Such control could not be assured through partnerships with Intuit or Microsoft, he said.
Dudley Nigg, executive vice president of Wells Fargo Bank, said Mr. Harrison's vision fell short in "respecting the customer's choice. ... Regardless of what we say, there may be many attractive consumers (who want to bank via Intuit or Microsoft programs) and we should think about how to serve them."
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John Ryan Co., the branch design firm, worked in secrecy for four years on "the Merlin project," an attempt with several technology partners to create the ultimate financial delivery system for the future. The company recently took the wraps off its "Merlin Center" in Stamford, Conn., and project director Robert H. Steele made his first major speech about it on Monday.
Mr. Steele, who was chairman in the late 1980s of the now-defunct Dollar Dry Dock Bank, New York, described a system that "may eventually include everything from super-branches, mini-branches, interactive video kiosks, and remote ATM sites to point of sale terminals, mail, phones, screen phones, laptops, PCs, personal digital assistants, multiple-application smart cards, and full-service home banking."
The objective is to "make banks far more effective financial retailers," breaking the bounds of branches that were built for a heavily regulated, less competitive past. Mr. Steele said research on 23 countries went into the Merlin design, and invited bankers have been visiting the center since last month at the rate of one bank a day.
