Ex-regulator sees danger in 'one-size-fits-all rules.'

Talking to an ex-bank commissioner brings to mind the story of the man given a choice between heaven and hell by St. Peter. He picks hell because it looks so pleasant, only to find that immediately after he makes his choice it becomes terrible.

"why the difference?" he asks.

"Ah," St. Peter replies. "Before you were a tourist. Now you are an immigrant."

I asked Geoffrey M. Connor, formerly New Jersey's bank commissioner and now a lawyer in private practice with Reed, Smith, Shaw & McClay in Princeton, N.J., how his perspective on banking has changed since he reentered the private sector a couple of months ago.

Vast Majority Are All Right

"The most significant point I would express is that regulations and legislation too often are 'one size fits all' -- applying to a whole industry when 99% of the members are not guilty. Thus the boutiques and other organizations whose operations are vastly different from those of the perpetrators, whose actions caused the new legislation, have an added burden that is expensive but meaningless in helping the public."

"What can we do about this?" I asked. "Can the various private associations monitor and control their own bad apples to keep everyone from being hurt?"

Jeff's answer: "Many are not members of the trade associations anyway, and many others don't care what the association says. I guess the best way to solve the problem of these abusers would be to have the associations publish advisory bulletins warning 'Stay away from so-and-so.'"

Common Sense

"But due process is a key to democracy, and it would be terrible to have such warnings about individual companies issued before the associations prove their own case. There is a lot people can do with common sense, though.

"If everyone else offers an 8% mortgage and someone offers you a 5% one, you have to be an idiot to think there is nothing wrong or that there's no catch in the offer being given to you."

Jeff has strong feelings about the impact a Federal Banking Commission would have on community banks and on their special role in our economy.

Dual Banking System Needed

"Community banks tend to be state chartered. Almost all new banks in New Jersey over the last 15 years were chartered by the state. If the Federal Banking Commission pushes the state dual banking system aside, what will happen to community banks? And what will happen to innovation, since most new ideas come from the states, the laboratory of democracy?

"Secretary Bentsen gives lip service to the dual banking system, but under the original proposal all state-chartered banks would have to pay the same amount to be supervised as national banks, and in addition they would have to pay the state.

"Why pay the extra charge? Unless full credit is given by the Federal Banking Commission for assessments and fees paid the state, I think it's the end of the dual banking system. I understand that the proposal has been revised so as not to charge smaller banks to be supervised by the Federal Banking Commission, but of course that could change later.

"The Federal Reserve proposal, uner which the Fed would supervise all state-chartered banks, seems to be better in this regard as the Fed has so much money it probably wouldn't have to charge much, if anything."

To jeff Connor, then, the end of dual banking would imply greater government control over the industry. And, as a reentrant or immigrant into the private sector, he feels even more poignantly than before that the banks themselves should make as many decisions as possible, rather than the people in posts such as he himself used to have.

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