WASHINGTON -- Comptroller of the Currency Eugene A. Ludwig said Monday that he supports broad powers for banks, including the right to sell insurance and branch across state lines.
Mr. Ludwig told bankers at a conference sponsored by Merrill Lynch in New York that he will support any new power or innovation that benefits consumers and doesn't pose a safety and soundness problem for the industry.
This was the comptroller's first public pronouncement on the controversial bank powers issue since taking office in the spring, and one of his first pro-industry declarations.
During his five months as comptroller, Mr. Ludwig often has seemed more like an adversary than a friend to bankers. He joined community groups in accusing banks of lending bias and has been vocal in pressuring the industry to step up loans to residents of depressed neighborhoods. Bankers thought the charges were exaggerated and grew wary of the comptroller.
Mr. Ludwig acknowledged Monday that the lion's share of social responsibilities among financial institutions has fallen unfairly on banking's shoulders and predicted this will change.
"The unmistakable trend is toward a more equitable distribution of that load" to other, nonbank financial service companies, he said. "The trend does portend a more level playing field for commercial banks."
|Seeds of Disaster'
The banking industry's shrinking share of the financial services market is deeply troubling, Mr. Ludwig said. Confining banks to lending is risky, he said, especially as the best borrowers increasingly turn to nonbanks for credit.
"If we leave banks without other safe lines of business we are sowing the seeds of disaster -- guaranteeing that the industry will become steadily less safe and less sound and that we will pay the price tomorrow."
Mr. Ludwig said that if new powers are clearly beneficial to banks and the public, he will approve them. If the power requires a change in law, Mr. Ludwig said he will "support -- and where appropriate, seek -- legislative change to permit the expansion."
Only |Details' Are Left
Currently, the industry is battling to keep Congress from imposing new barriers on insurance sales.
Mr. Ludwig said, "The argument that selling insurance creates safety and soundness problems for banks simply lacks credibility, while the argument that selling insurance would benefit consumers seems virtually self-evident."
He also endorsed interstate branching, noting only that "there are details to be worked out."
"If laws and regulations limit banks to the business of lending, the drift of the better parts of that business to other financial services providers means that banks must go farther and farther out on the risk curve in order to maintain profitability.
"If we leave banks without other safe lines of business, we are sowing the seeds of disaster," he said.
The groundwork has been laid for new powers, Mr. Ludwig said. by the 1991 thrift bailout law that forced banks to tighten up their operations. The fact that the deposit insurance fund is being rebuilt also sets the stage, he said.
Mr. Ludwig's speech was applauded by industry representatives.
"It's very, very encouraging," said Tony Cluff, executive director of the Reserve City Bankers Association. "This is a new opening for him, and I think it is very refreshing."
Because Mr. Ludwig is close to President Clinton, Ed Yingling, lead lobbyist for the American Bankers Association, said the speech may indicate the administration's plans.
"There is a lot to feel good about in this speech," Mr. Yingling said. To have the administration's agenda "laid out in this form and in this tone is very helpful."
Mr. Yingling predicted action in Congress this year or next on interstate branching, but said new powers legislation is not likely until 1995.
Ken Guenther, executive vice president of the Independent Bankers Association of America, said he does not object to new powers such as insurance sales. But he said IBAA remains firmly opposed to interstate branching and insisted that wider geographic expansion has not been proven to aid consumers.