To the Editor:

Two recent issues of American Banker have contained extensive coverage (largely from the perspective of the commercial bank lobby) of the so- called unitary charter issue.

The first followed the 29-30 vote by which the Lafalce et al. amendment to eliminate the bill's prohibition against the transfer of existing or the chartering of new unitary charters to commercial firms failed.

The second covered the successful (29-26) Bentsen amendment that retains the prohibition against the chartering of new unitaries to commercial firms but permits the transfer of existing ones.

It is unfortunate that commercial bankers are saying they cannot support legislation that does not close down what they contend is a loophole. The bank lobby is far more powerful than ours. We are a political factor in only a few states. Against an undersized sixteenth seed, the nationally ranked banker lobby is locked up in a political stalemate, as the close votes reflect.

The question is, why, given the relative strength of the lobbies involved, has the Congress not knuckled under?

Shareholders of existing unitaries have had the right to transfer control of their firms to nonfinancial companies since the inception of the charter. This right to affiliate with commercial companies obviously adds value to the unitary charter. Thus, it would seem only fair that the burden of proof on those who advocate the limitation ought to be a very heavy one.

If a valuable business asset is to be taken away, there should be an overwhelming reason for doing so-presumably one well-grounded from either the standpoint of public safety and soundness or economics. The case for limiting affiliations of unitary thrifts seems more political, and it should be rejected by the Congress.

Since the most ardent advocates of the charter limitations do not assert a safety-and-soundness reason, there is no need to mount a defense here. Suffice it so say, unitary holding companies have been a source of strength in the industry as a major supplier of capital, a commodity that the industry needed desperately 10 years ago.

The bank lobby does argue an economic case-that the unitary thrift charter is an open license to combine banking and commerce. But is it? As the considerable debate in the House Banking Committee pointed out, bankers have not made this case effectively.

At the root of the separation between banking and commerce has been a principle deeply embedded in American law and lore: that those who pass credit judgments on business applicants should be neither investors in the borrower nor investors in the competitor. It is this relationship between lender and borrower to which the separation applies.

The thrift business, for all its efforts, is not even an insignificant lender to American business.

True, the federal thrift charter allows up to 10% of the assets of a thrift to be invested in commercial lending, with an additional 10% for small-business loans. Some state thrift charters may be more liberal.

But virtually no thrift institution is anywhere near those thresholds. Those that are invariably convert to a commercial bank charter, as Bayview Federal, one of our former members, just did.

Thrifts are people's banks and in no way compromise the barrier between banking and commerce.

The only reason the unitary charter is an issue is political. Lawmakers would like to enact reforms to our financial structure, and to do so must craft legislation that the major players in the financial services industry can live with.

Unfortunately, for bankers this means having to give up some valuable rights, and they are justifiably reluctant to do so. They are being asked to acquiesce to substantial limitations in the comptroller's power to authorize insurance sales by banks, and to cede to the Federal Reserve the regulation of their authority to engage in securities, real estate, and insurance.

There may well be now consumer protections that banks and thrifts alike will be required to address, and certainly new and more complicated regulatory hurdles before permission to affiliate or merge will be granted.

Meanwhile, the benefits in the bill for commercial banks flow very unevenly.

For small banks especially, there is far more giving than receiving. The ability to affiliate with insurance or securities firms is not very important to them. What do they get? They gain access to Home Loan bank advances on the collateral of business and agricultural loans (presently, only mortgages may be posted as collateral), and maybe a little chunk of the thrift charter.

This is not much to drive a bill of such importance, and if the thrift lobby is successful, the charter chunk could shrink further as the bill progresses.

Why has the banking lobby invested so much in a negative campaign that might not even succeed? Why does the banking industry acquiesce to limits of its own charter and respond by trying to limit ours?

The thrift lobby may eventually be overtaken, but at least it knows what it is fighting for. Bankers did not have much luck last year trying to rein in credit unions, and so far they have not fared much better against a much less potent thrift lobby.

There is nothing wrong with the bank messengers. It is the message that needs attention. If bankers are dissatisfied with what the bill provides them, they ought to ask for more. If a successful defense of the unitary charter bodes ill for financial restructuring legislation, so be it.

Lou Nevins


Western League of Savings Institutions

Los Angeles

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.