WASHINGTON -- The financial services industry will change dramatically if Federal Reserve Board Gov. John P. LaWare's predictions come true.
Mr. LaWare, speaking at a conference in Houston last week on the future of the industry, said he expects legislators to tear down the walls that separate banking and other financial businesses.
"Before the end of the decade I expect Congress will consider in detail, and enact, broad reform measures to permit the integration under common ownership of commercial banks, investment banks, and insurance companies," Mr. LaWare said.
Integration is needed if the United States wants to remain a leader in the financial world, he said.
European banks already are integrated, and banks in Canada and Japan are moving in that direction, he said.
Mr. LaWare also said investment banks and insurance companies will continue to steal lending business from banks.
"They have the advantage of less regulation than banks," Mr. LaWare said. "That translates into lower costs and more leeway to be creative in the kinds of financing and other services they can provide."
Even with interstate branching, Mr. LaWare predicted the country will still have 7,000 to 8,000 banks.
Interstate branching also should not hurt community banking because many customers want to deal with bankers they know.
"If I were active in bank management today, I would love to run a bank in a small town that was in competition with the branch of a money-market bank headquartered 1,000 miles away," Mr. LaWare said. "I'd beat their socks off."
Mr. LaWare said he does worry that the government might put into effect unnecessary rules to limit the use of derivatives. That would be a mistake, he said, because institutions would simply take their business overseas.