Comment: As Winds of Change Pick Up, Some on Hill Cling to Past

William Poppei, a professor at DePaul University, spoke recently about the winds of change being ushered in by the computer revolution. Here are a few of his nuggets:

*A weekday edition of The New York Times contains more information than the average person living in the 17th century was likely to come across in a lifetime.

*Computing power is 8,000 times less expensive than it was 30 years ago. If we had the same progress in automotive technology, a Lexus would cost $2 and go 600 miles on a thimble of gas.

*A wristwatch today can have more computing power than existed in the world in 1960.

*One fiber-optic wire can potentially carry all the phone calls in the United States on the peak moment of Mother's Day (a million of these threads can fit in a half-inch tube).

*Almost half the companies in the Fortune 500 in 1980 had disappeared by 1990.

Mr. Poppei's theme is that to be successful in business, people need to think about the future in radically different ways. As he puts it, perhaps borrowing from Yogi Berra: "The future isn't what it used to be."

Banking is far from immune to the seismic changes occurring throughout the business world. I'll add to Mr. Poppei's list a couple of items specific to banking:

*Twenty years ago, domestic banks provided 75% of the business loans in the U.S. Today the number stands at roughly 40%.

*Twenty years ago, money market and mutual funds were virtually nil. Today they equal roughly the total of checking, time, and savings accounts in U.S. banks.

The financial services industry is being revolutionized. The services offered, the types of firms offering them, and the methods of delivery are changing at warp speed.

Viewed in context, the Washington banking scene could be aptly described as the theater of the absurd. Washington policymakers are sitting on the porch debating whether to remodel the kitchen while a fire is raging in the living room.

Clear-cut issues are being hotly contested by special-interest groups trying to cling to a past that's not in their future. Issues urgently in need of attention lay dormant.

In the first category is the debate over Glass-Steagall reform. Nearly everyone agrees Glass-Steagall is an anachronism. Yet, reform is being bottled up by insurance agents in a sideshow over whether banks should sell insurance.

The delivery systems for insurance products for the mass market are inordinately cumbersome and expensive. They'll be delivered much more efficiently in the future - if not by banks, then by someone else. It's the height of folly for politicians to attempt to shield the agents from changes that are inexorable.

In the second category are a host of issues Washington can't seem to muster the courage to address seriously. Three that stand out are the Bank Holding Company Act, the deposit insurance system, and the nature of bank regulation.

The Bank Holding Company Act was passed and signed into law in a vain attempt to protect smaller banks from competition. Does the law serve any purposes today, and, if so, what are they? Can we achieve our purposes by less intrusive means?

The public is voting against the costly protection of the deposit insurance system by moving hundreds of billions of dollars into money market accounts and mutual funds. Is the deposit insurance system still needed, and, if so, for what purposes? Can we achieve our objectives by less costly means?

Regulated banking services are rapidly becoming less relevant to the economy. What purposes are served when we impose a $15 billion annual regulatory burden on an industry that's facing enormous challenges in the marketplace? If we need regulation, why don't we impose it on all the players?

I believe it was Yogi Berra who said, "When you come to a fork in the road, take it." We are at that fork in banking.

Mr. Isaac, former chairman of the Federal Deposit Insurance Corp., is chairman and CEO of Secura Group, Washington.

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