The magic of the marketplace never ceases to amaze me. It even works its wonders on government agencies like the Office of the Comptroller of the Currency.

In the past year or so, scores of national banks, including some pretty big ones, have converted to state charters. There appear to be a couple of reasons banks have been leaving the national system.

For one thing, it costs more to be a national bank. A $10 billion-asset national bank will pay roughly $1.4 million per year to the Comptroller's office to cover the basic costs of supervision. A state bank's fees will be different in different states, but a typical $10 billion-asset state bank might expect to pay $600,000 per year.

The Comptroller's office, alarmed by the conversions, has acted to reduce the costs associated with a national charter. A month or so ago, the Comptroller announced reductions in filing fees for applications, which are estimated to save national banks some $10 million annually. More recently, the Comptroller announced that supervisory assessments would be reduced by 6%, instead of an expected hike of 2%, which will save national banks some $30 million annually.

I don't believe the Comptroller's office will be truly price competitive unless it takes greater advantage of the "free" examinations provided by the Federal Deposit Insurance Corp. and the Federal Reserve System. These two agencies participate in state bank examinations without charging for their services, which reduces significantly the costs of the state banking departments.

The Comptroller's office has been moving in the opposite direction in recent years. At the Comptroller's insistence, the FDIC has gone from assisting in hundreds of national bank examinations annually to only a couple of dozen.

Interagency exams, if they are coordinated as joint or alternating exams so as to not increase the burden on the banks being examined, are highly desirable. Two sets of eyes looking at things from different perspectives tend to produce better results than one set of eyes. The Comptroller's office, by sharing more of its examination responsibility with the FDIC, could reduce its costs while maintaining or even improving quality.

The out-of-pocket cost of being a national bank is not the only thing driving banks to convert to state charters. There are also less tangible considerations, such as the attitudes of supervisory personnel and the attractiveness of the powers of a state bank vis-a-vis a national bank.

Many state banks have a broader range of powers than national banks. For example, unlike a national bank, a state bank that is not a member of the Federal reserve System can be affiliated with a full-scale investment bank.

The Comptroller's office is taking steps to reduce these disparities. It has proposed regulations to expand the range of things national banks may do through bank operating subsidiaries, though there is a limit to what the agency can do without legislation.

All of which leads me back to the original point about the marketplace. Our system of government, with its diffusion of power and many checks and balances, tends to make government more responsive to the will of the governed. A national charter would seem to be the charter of choice in an interstate branching environment because of the ease of dealing with one regulator across the nation rather than several. The states are planning to respond to that threat by developing a coordinated approach to bank supervision to emulate the national system.

State banks tend to have lower regulatory costs and broader powers, and the state regulatory environment is considered by many to be less adversarial.

The Comptroller's office is responding on several fronts to reduce these disparities.

Think back a year ago to the efforts to consolidate the bank regulatory agencies. If we had today a single banking agency, how vigorously do you suppose that agency would be responding to the need to reduce supervisory costs and liberalize the permissible activities of the banks?

The next time some well-intentioned soul comes forth with a plan to consolidate bank regulation, bankers should remember that for the marketplace to work properly, people must have choices.

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