In my book, Leon T. Kendall is one of our best long-range thinkers.

He went to Indiana University for his doctorate at a time when caring what happened to our financial structure was looked upon with contempt. That same contempt exists today in our highly mathematical graduate schools.

He has been chief economist for both the New York Stock Exchange and the U.S. League of Savings Institutions and was president of Mortgage Guaranty Insurance Corp.

Giving Back as a Teacher

Now, he is giving back that knowledge of financial institutions and real estate to another generation as a faculty member of the Kellogg Graduate School of Management at Nortwestern University.

I have long found his insights to be important. I particularly recall the one he gave me 25 years ago about American cities. They used to be built where rivers and railroads met. Now, however, they are more likely to grow near major airports or where interstate highways cross. Look where we have built so many new hotels and commercial establishments and residences today.

Through teaching and directorships on the boards of the Resolution Trust Corp. and the Chicago Board Options Exchange, Lee Kendall is still seeking insights into the future of our financial institutions and cities.

A significant point he brought up when we met recently is how commercial companies are bypassing banks, and not just by using commercial paper instead of business loans. In less obvious ways, too, we are seeing the role of commercial banks being reduced.

"Look at IBM," Mr. Kendall told me. "First, they had their employees place retirement monies into IBM stock. Then, their employees wanted diversification, so the company gave them the option of buying mutual funds with their retirement dollars. Next, the company says, |Why use other mutual funds and pay their fees? Let's set up our own index funds'"

Some employees wanted fixed-income alternatives, Mr. Kendall pointed out. So we saw IBM borrowing money from these employees. Now, they also borrow from the general public at a rate 25 basis points above the weekly Donoghue average for money-market funds.

The money goes to fund IBM itself, and at a much lower cost than bank loans.

You will also see IBM funds listed among the mutual funds tracked in your daily paper's financial pages. These funds have a 24-hour "800" number and check-writing privileges; they take accounts from everyone. It's a growing banking profit center.

Change in Small Increments

Deregulation and decentralization are powerful forces at work in finance. Because they work in small ways, many miss them.

For example, home mortgages, in the days of cartel banking, used to be offered by perhaps 10 local originators in a medium-size city. Now, with the proliferation of mortgage bankers and brokers, one can find 50 to 100 competitors in a typical city and hundreds more in a metropolitan center.

Mr. Kendall also sees other ways banks are being bypassed. He looks at American cities with all their costs and troubles and sees many companies facing increasingly competitive global markets. Many are just plain deserting high-cost cities and moving to small towns.

"A company that moves to a small town in Wisconsin or Pennsylvania finds that it is wellcomed there rather than looked upon as a potential problem," Mr. Kendall told me. "The company has no problem with labor, with pollution controls, or with a government that views it largely as a source of revenue."

Decentralizing Population

He believes that the new employment base will attract the necessary infrastructure to small towns. Companies such as Whittle Communications are likely to franchise their experimental private schools in such growing communities, where the chances of success are far better than in urban America.

"Throw in cable television as a means of providing culture and entertainment," Mr. Kendall said, "and you will find many Americans who will never

need our major cities again.

"For much of its first 100 years, the United States was a decentralized society. Its third century may well find it moving that way again. If small towns enhance the quality of life, watch what people and employers do."

This may be terrible for our central cities, but it certainly is a scenario that deserves attention. Some insightful banker may take a cue from Sam Walton or A.P. Giannini and join the trek.

Mr. Kendall goes even further: "Why do we need to depend on Washington as the center of American life?" he asks.

For more years that not in our nation's history, Washington was not the nation's power center.

Americans are losing faith in the federal government's ability to lead, and the rest of the world seems to have lost faith to an even greater extent in the efficiency of centralized government.

Exactly where the nation's power center will settle is tough to predict, but bankers must take into account in their strategic planning that we as a society may be redefining our centers.

|Following' Communist Path

Leon Kendall's views on the movement of our national power center, combined with the population migration he expects, could mean that the United States is turning toward decentralization and diffusion of power, as happened in the Soviet Union or Czechoslovakia.

Mr. Kendall could be overemphasizing to make his point.

Many believe that our cities are not dying but coming back. Others believe that Washington will fight like mad to keep its power, as did the Soviet Communist Party.

Nonetheless, deregulation and decentralization of our banking system, our cities, and our central government deserve study and attention. The worldwide forces of change that usher in the 21st century will not bypass the United States.

Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.

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