They were the best of times, they were the worst of times ... No, this isn't a tale of two cities, but a tale of today's financial services industry: one sector that is encumbered with an ever-increasing regulatory burden and legislative micromanagement and another, virtually nonregulated sector, which is reaping the benefits of its competitive advantages without bearing the social and fiduciary responsibilities of depository institutions. While banks and thrifts are experiencing record capital levels and record profits, there is a sense of foreboding, the likes of which 1 cannot recall in my 27 years in the banking business.

The cold, hard truth is that while depository institutions are occupied trying to cope with a seemingly endless array of government requirements, financial service providers - subject to much less government oversight and regulation - are gaining a significant percentage of financial assets and customers.

It is estimated that today's regulated depository institutions hold only about one-third of the nation's financial assets - down from about 55% of the total two decades ago.

Despite numerous attempts over the past 10 years to enact responsible banking reform legislation to allow regulated depositories to compete on a level playing field, those efforts have been thwarted by an apathetic Congress, the powerful non-depository financial services entities that want to maintain the status quo, and our own industry's inability to reach a consensus on what it wanted done.

We must continue to address the first two obstacles by advocating the important role financial institutions play in the marketplace and, just as importantly, in the communities they serve. That is the real issue here, the impact on communities and consumers. But realistically, this will, by its very nature, be a long-term effort trying to chip away against an entrenched group of "status quo-ers" on Capital Hill. But we can and must overcome what has often been the industry's most deadly enemy-ourselves. In fact, if the banking industry is to survive, let alone prosper, we must move mountains to bring unanimity of purpose, if not thinking, to our industry.

My profession, variously known as the thrift industry, the savings institutions industry, or the savings and community banking industry, has taken a quantum leap in bringing virtually all of our institutions under one roof.

In June 1992, we accomplished what the naysayers said couldn't be done; after a nine-month period of intense negotiations between the leadership of the two predecessor trade groups, Savings & Community Bankers of America was born.

|Them' Is |Us'

What we discovered as we talked about bringing the two trade groups together was that "them" was "us." Whether a member institution was a member of one trade group or the other, or both, we were all in the same business of serving the financial needs of families and small businesses, with an emphasis on mortgage lending for homeownership.

It made no difference whether we called ourselves savings banks, savings and loans, cooperative banks -- or even commercial banks, for that matter.

We even discovered that our legislative and regulatory priorities were virtually the same and that any differences were not deeply held beliefs, but matters of emphasis.

SCBA now represents the vast majority of the savings institutions industry. Our part of the larger banking industry now speaks with one voice while continuing to reflect the diversity of our members' interests and activities.

Short of bringing everyone in the regulated financial institutions industry under the same tent, there is a lot that can be accomplished by the various components of the banking industry if we continue to work together. We should not brush aside differences, but we can work toward the larger common goal of reinvigorating the banking industry into a competitive force in the financial marketplace.

During my 18-month tenure as chairman of SCBA, I have witnessed an extraordinary amount of cooperation among the trade associations for banks and thrifts.

Industry Support

It was gratifying to have the commercial bank trade groups lend their support to our industry's continued struggle to put the Federal Savings and Loan Insurance Corporation debacle behind us by urging Congress to provide sufficient funds to the Resolution Trust Corporation and the Savings Association Insurance Fund. That support was extended in the proper belief that commercial banks are adversely affected by the instability unfunded RTC and SAIF obligations cause to the entire financial system.

All regulated depositories also face the common problem of regulatory burden. There is no one around the table who hasn't been overwhelmed by all the rules and regulations imposed by the federal government. The burden is real and costly. Our customers are refusing to pay the additional costs and are moving to the nondepository and unregulated service providers. We have finally realized that the real battle is not between banks and thrifts, but between the regulated and the nonregulated.

To its credit, the Clinton administration is listening, and has started to tackle the problem by overhauling banking regulations. The next step, which the administration says won't come before next year, is relief measures that require legislation.

That is all well and good. But modernization of the laws under which banks and thrifts operate must be the ultimate goal. If they are not brought into the 21st century, I fear for the ability of regulatory depositories to compete effectively with those that don't face the same government burdens. The ultimate loser won't be the industry, but the customers and communities that we serve.

Gerald J. Pittenger is also president, Washington division, Great Western Bank, A Federal Savings Bank, Bellevue, Wash.

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