A quiz will follow. But first, some background to set the stage and provide a fair shot at the right answer.

The chairman of the Senate Banking Committee says he will make financial modernization a top legislative priority. Across the Hill, the chairman of House Banking sticks to his guns and lobs in his reform bill from the 105th Congress. Wish them both well.

Headlines, meanwhile, preview conclusions translated by the analysts:

"Banking Industry Bulking Up." Translation: As margins put pressure on operating results, more banks are consolidating to realize efficiencies and economies of scope and scale, and promise to improve their efficiency ratios.

"Demand Deposits Hold Key to Success." Translation: Because banks make money off the "spread" - and, at the best banks, increasingly from fees for noncredit products and services - they will make more money if their cost of funds is low.

Demand deposits are the cheapest. And for setup and periodic processing expenses, they're free. It follows they're the most profitable funding source.

"Institutions Seek Larger Base." Translation: Banks need to acquire, consolidate, or merge with other banks, retain existing customers, and attract new customers. At the same time, they need to reduce costs and spread them over a larger customer base. Doing all these things will make them more competitive and more profitable. It's market share, stupid.

"Comptroller Opts for Op Subs." Translation: The Comptroller of the Currency allows national banks to form bank operating subsidiaries to conduct activities closely related to banking, such as insurance distribution, payroll services, and even health-care data processing.

The Federal Reserve is not a big fan of this approach. It prefers those activities be housed in "affiliated" subsidiaries of a bank holding company.

"Banking and Insurance Industries at Odds." Translation: It's bad enough the OCC says it's all right for banks to sell insurance, which doesn't engender a whole lot of sympathy from the insurance agents. But consider the groundswell of insurance company applicants for charters at the Office of Thrift Supervision. Now that's got the attention of commercial bankers.

So here's the quiz, a multiple-choice question: We are going to form a huge, full-service, cross-border financial institution, to be called "BancoAmericano." Where will we put its headquarters?

(A) Charlotte, N.C.

(B) San Francisco

(C) Madrid, Spain

(D) None of the above

(For the answer, see the bottom of this column.)

What's this got to do with banking in America? What if BancoAmericano will have worldwide assets of $281.3 billion? And 8,681 branches throughout Europe and Latin America? Not to mention 106,510 employees scattered about the globe?

Well, it has about 20% of its domestic market for loans, deposits, and funds under management-right up there with Chase, J.P. Morgan, First Union, and Bank One. By some measures, it's larger than Bankers Trust, Wells Fargo, and Fleet, and substantially larger than Wachovia, Bank of New York, and Mellon, to name a few.

To enjoy some competitive advantages, BancoAmericano should be located in a region where efficiency ratios of commercial banks trail those of their U.S. counterparts and therefore offer tremendous upside potential for improved profitability.

It should be a region that embraced cross-border banking directives more than a decade ago, where the institution that has your checking account might also issue you an insurance policy or sell you securities.

Here are a few suggestions why it's important for U.S. banking and other financial institutions to look at our BancoAmericano model.

Begin with economic and monetary union in the 11 European Union countries that have now embraced a single currency, the euro. That's where BancoAmericano does most of its business.

As the common currency takes hold, increased competition will follow surely as night follows day. Consolidation to improve efficiencies and gain market share will take on added importance. The folks at our BancoAmericano predict they can increase profits of the combined banking enterprise by 25% in a couple of years.

National borders in Europe - like state borders here-also will diminish in importance. Don't underestimate the importance of deeply rooted geopolitical, economic, societal, and cultural distinctions throughout Europe. But also don't underestimate the importance that consumers worldwide place on convenience and price. It just may take a little longer to cross the border from Italy to Austria than from, say, Illinois to Alabama.

U.S. and European banks will want their share of customers from the expanded "Euroland" population base, about 290 million, larger than that of the United States. Indeed, U.S. multinational banks have recently experienced disproportionate growth in non-U.S. demand deposits, according to data just released by the FDIC.

The banks, here and abroad, will apply technology to operate 24-hour banking and service centers around the globe. Conversion to a single currency in 11 retail markets simply makes the job easier and probably will accelerate changes to the competitive landscape.

"Conversion" in wholesale banking also is proceeding in countries outside the European Monetary Union. There, many companies already have decided to maintain dual banking and accounting records.

American investment banks are the recognized leaders in global investment banking, including the task of advising parties on M&A transactions. To be sure, they're not tapped out at home; we've still got some 10,000 banks here, after all. But opportunities to advise European banks on mergers and acquisitions offer, at the very least, equally attractive targets for them.

A case in point is our BancoAmericano transaction. Goldman, Sachs & Co. advised both sides of the merger that created our megabank. In Europe advisers generally can ignore the long-debated restrictions against mixing banking with commerce that still encumber deals on this side of the Atlantic.

Finally, we may get around to abandoning the preferred pooling-of- interests method of accounting for bank mergers. Instead, we may adopt the convention generally preferred in Europe for mergers and acquisitions- something akin to our purchase accounting treatment, with the resulting charge for intangible goodwill.

Change in that direction, however, is expected to be delayed for a while. So watch for U.S. banking institutions that want to grow in Europe to accelerate acquisition or affiliation strategies to take advantage of the current accounting climate and rules.

It may be that after a while it just won't matter a great deal where the headquarters of our BancoAmericano is going to be located, once we come to realize fully that capital knows no borders or boundaries.

Come to think of it, at the end of the day, it just may not matter what the Senate and House Banking Committees get around to doing (once current distractions in Washington pass) after three decades of trying to modernize and reform our banking laws.

(C) Madrid, of course. The bank's name is a forced contraction. Its full name is Banco Santander Central Hispanoamericano, chosen as the moniker of the institution resulting from the just announced $11.4 billion merger of Banco Santander-which last year bought Banesto, formerly Banco Espanol de Credito-and Banco Central Hispanoamericano.

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