LaWare Sees Half As Many Banks By the Year 2010

WASHINGTON -- The United States could be left with 5,500 banking companies by the year 2010, about half of today's number, Federal Reserve Board Governor John P. LaWare told the House Banking Committee on Tuesday.

And the number of banks could shrink still further if Congress permits full interstate branching, Mr. LaWare said, citing central bank studies of potential consolidation.

Mr. LaWare sought to dispel fears that competition would be seriously diminished. Some lawmakers are uneasy about the prospect of combinations among the largest banks.

But it was unclear, given time pressures, whether the hearings would have any impact on the banking bill, which would permit interstate branching. Most observers believe Congress is likely to approve a scaled-back version of the administration's ambitious reform proposal, and could include interstate branching in the final package.

The Costs of Megamergers

House Banking Committee Chairman Henry B. Gonzalez warned that "megamergers" would raise the cost of financial services to consumers and small businesses, while providing little relief for the hard-pressed banks.

The Texas Democrat cited a recent study by the Richmond Fed that questions the administration's contention that consolidation will save the industry tens of billions of dollars.

"If there are questions about the billions of dollars of savings," he said, "there is outright fear among consumers, small businesses, and communities about what consolidation might mean to them."

"This urge to merge leaves those of us in rural areas with an uneasy feeling," said Rep. Carroll Hubbard, D-Ky.

"But if the market wants mergers, there is very little this committee can do about it, except to be sure the government doesn't strike deals in favor of |too big to fail' banks," he added.

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