The recent approval by the House of Representatives of the North American Free Trade Agreement should augur well for the U.S. economy in the years ahead. Anything that helps the economy benefits the banking system, so in that sense our nation's banks are at least indirect beneficiaries of the new treaty.
Perhaps more subtle, but nonetheless important, are the political implications for the banking industry of President Clinton's come-from-behind Victory.
Modernization of the financial system is complicated stuff, not easily understood by most voters. Because it is so difficult to get the general public engaged and energized on banking reform issues, particularly in the absence of a crisis, the battles tend to degenerate into warfare among the special interest groups.
Battles Lines Drawn
Big banks and small banks sometimes square off, for example. And lobbyists for the insurance and securities industries are always looking for an advantage vis-a-vis the banking industry.
A particularly egregious example of the latter is the current effort by insurance agents to roll back insurance powers in connection with the interstate banking bill.
In the Fray
Not all, but many, members of Congress are unable to rise above the fray and view financial reform from the standpoint of the public interest.
They are not hearing from the general public, but instead are being pressured by constituents with vested interests.
In years past, the task of sorting through the conflicting claims has usually fallen, almost by default, to the executive branch.
The Treasury, and ultimately the President, have usually led the charge whenever meaningful reform has occurred.
No Clear Mandate
Bill Clinton came into office with 43% of the vote and without a clear mandate to govern. Some early miscues and a bruising, highly partisan battle on the budget bill put the viability of his presidency further in doubt.
President Clinton and members of his team at Treasury have been saying a lot of the right things about reforming the financial system.
They seem aware of the need to reduce the burden of overregulation and to allow the markets to work.
Where Do Banks Stand?
But two serious questions about the new administration have loomed large. Does the administration have the power and skill to get anything done? And does it care enough about banking issues to spend any political capital on them?
I'm afraid the jury is still out on the second question. But the Nafta debate and its outcome have gone a long way toward answering the first question.
Bill Clinton decided the United States simply could not reject Nafta. He took charge of the process and waged an artful, highly successful battle.
The victory was all the more impressive because to achieve it he had to assemble a bipartisan coalition and overcome strong opposition from organized labor and key members of his own party in Congress.
The Good News
He has demonstrated that he knows how to use the power of his office to govern. That's the best news out of Washington in some time.
Bankers must now convince the administration that it ought to use some of its newly acquired power to modernize the financial system. If President Clinton had lost the battle for Nafta, that effort would have been of dubious value.
But with his victory the President has shown the importance of having the administration's enthusiastic support for financial reform.