Banks Risk Being Outstripped By Software Firms, Ludwig Says

Comptroller of the Currency Eugene A. Ludwig said Thursday that banks are in danger of being replaced by software providers as the primary point of customer contact.

In a wide-ranging interview, Mr. Ludwig recapped his agency's 1995 achievements and looked forward to issues that will occupy him this year.

By far, Mr. Ludwig's biggest concern is how the industry will be affected by technologies such as electronic money and computer banking.

"This is a freight train whose headlight we can see on the tracks coming down toward us," Mr. Ludwig said. "The banking industry is not where it should be on this issue. Banks should be developing financial software. After all, that is banking."

While worried about preserving a place for the banking industry, Mr. Ludwig said the government has no plan to rush in with regulations.

"Right now, in this country, there isn't such significant activity in this area that one has to rush out and put in a new regulatory structure," Mr. Ludwig said. "To do that could stifle a developing market that could produce great good for the country."

Mr. Ludwig also exhorted national banks to exploit the advantages of their charters.

For example, he pointed to a Supreme Court ruling last year that banks may sell annuities. That case pitted NationsBank Corp. against Variable Annuity Life Insurance Co., or Valic.

"In the area of competition, there are three things to say: Valic, Valic, Valic," Mr. Ludwig said. "I don't think bankers appreciate how very significant this is."

The Supreme Court gave the Office of the Comptroller of the Currency broad authority to permit activities not specifically mentioned in the National Bank Act. "And only when we are clearly unreasonable can the courts overturn it," Mr. Ludwig said.

Still, Mr. Ludwig said, few national banks are asking the agency to approve new products.

The Comptroller's Office is trying to clarify through a regulation what activities are allowed under the National Bank Act. A proposal was issued in November 1994 that - though criticized by federal lawmakers as too aggressive - would let national bank subsidiaries offer products and services prohibited for the parent.

In the interview, Mr. Ludwig said he expected the long-awaited rule to be finished this year. It simply "makes clear what is already" in the law, he added.

"We're not pushing the envelope," Mr. Ludwig said. "We haven't invented anything. (National banks) have a charter that grants them rights, and when they have those rights, we're going to grant them."

Banks may be reluctant to apply to the agency, given that the OCC may sit on a request for months. For example, Great Western Financial Corp. last March applied to charter a national bank with branches piggybacking its thrift branches. The thrift company filed the application, at least partly, to shift its Savings Association Insurance Fund deposits to the Bank Insurance Fund in order to save on premiums.

"This is a much more complex situation than simply filing a charter application," Mr. Ludwig said. "There are allegations that this is about shifting funds in a way that arguably violates other laws."

That said, Mr. Ludwig added: "I don't think it is our role to play politics, and ultimately if they have the legal rights to have these, even though it may make people uncomfortable, we're going to grant charters."

Mr. Ludwig also pointed to the OCC's "supervision by risk" program as a major highlight of last year. As banks become less homogeneous, examiners are focusing on risk management procedures rather than loan files.

"The banking industry is going to look like the bar scene in Star Wars," Mr. Ludwig said. "Everyone is going to look very different."

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