DALLAS -- Though they fight over many issues, bankers and brokerage executives agree on one thing: The lines between their industries are blurring at lightning speed.

As Main Street banks increasingly sell investment products that once were the domain of securities dealers, Wall Street builds its turf by offering everything from small business loans to mortgages.

That rapid change puts both industries on a collision course in Congress over regulatory reform and how to reshape the financial services industry. For nearly 700 broker-dealers, the Securities Industry Association will lead the fight for parity.

In an interview here this week, trade group president Marc E. Lackritz and outgoing chairman Thomas M. O'Donnell talked about the future of both industries and the outlook for regulatory reform.

Both men believe bankers and broker-dealers are far apart on just one issue: the use of federal deposit insurance.

They say Congress should allow banks to branch into new businesses -- including securities underwriting -- as long as those subsidiaries are funded with uninsured wholesale deposits.

At the same time, they see the day when brokerages will operate insured banks.

Both men offer unique perspectives. Mr. Lackritz, 47, is a certified FOB (Friend of Bill) who was a Rhodes Scholar with the President in England.

Mr. Lackritz is a Washington insider known for his intellect, political savvy, and ability to rally hard-to-unite securities dealers.

Mr. O'Donnell, 57, heads one of the Midwest's best-known brokeages, Cleveland-based McDonald & Co., which competes head to head for customers with Banc One Corp., one of the nation's premiere retail banks.

Both Mr. O'Donnell and Mr. Lackritz offer strong opinions on everything from their belief that banks do not have greater customer trust than securities firms to the need to increase national savings rates.

Q.: Many banks are quick to cite brokerages as their most serious competition, how does the securities industry view banks?

LACKRITZ: The area where we see the most competition is on the retail side, where everyone is competing for [investors] as long-term interest rates have declined.

On the wholesale side, we don't see a lot of competition yet because the business has traditionally been dominated by the large New York banks.

Q.: Mr. O'Donnell, in Ohio you have some of the best bank competition in the nation. Is it having an impact on your bottom line?

O'DONNELL: We see Banc One. In fact, we sold them our half interest in what is now Banc One Capital Markets and we are starting to see them on the investment banking side.

In general banks have not affected our bottom line, at least not that we can detect yet.

Q.: As in many industries, bankers bemoan regulation and tend to suffer from the grass-is-greener complex that securities dealers have it better than they do. Do you?

LACKRITZ: The issue is not really which regulators are more onerous to answer to. The real question, it seems to me, is that if they really want the rules of the securities industry they are more than welcome to come into it. Nobody requires that they remain a bank.

They choose to be in that business. Our members choose to be in the securities business. It means you don't have a federal safety net under you. It means you don't have access to the Fed window.

It means you don't have federal insurance behind your deposits. That's riskier, but they are free to give up their charters and come into the securities business at any time.

O'DONNELL: [Deposit insurance] is the great unequalizer. All things being equal, if you are a consumer and one product is insured and the another one isn't, which are you going to take? If we have a level playing field, we'll take on anybody. They have an unfair advantage through federally insured deposits that somehow get carried across so that everything they do is insured. Q.: So legislatively, what do you want Congress to do? LACKRITZ: This is an issue that has festered for 60 years. In 1990, we put out a proposal for a level playing field, but the bankers saw it differently [they opposed the legislation] and the Bush administration saw it differently [by supporting the bankers].

We now have a unique opportunity with the new administration beginning to focus on issues about the financial services industry. We are not very far apart from the banks, really,. The issue is federal insurance and the safety net.

If we can work out a mechanism to insure that federally-backed deposits are not used to unfairly compete with securities firms, then we are there.

Q.: Let's assume that reforms go nowhere and regulation is unchanged. How does that affect both industries in the coming years?

O'DONNELL: If there is no change, I see continuing consolidation of the banking industry because they all feel they have to rationalize the size of their institutions. We've already seen that in Ohio.

Q.: The securities industry is just now recovering from the contraction triggered by the market correction in 1987, so there seems to be some comparison between how the two industries are being remade.

O'DONNELL: Actually, it's a never-ending process, But I would point out that with all the failures of firms that we've had, we bury our own dead.

We have never put our hand out to the federal government and said we want a bailout on this guy to keep him from going under.

Q.: Many bankers say they can compete with brokerages because they believe they know their customers better than your industry and have a higher degree of trust than securities firms. Any response?

O'DONNELL: The reason they have the trust factor is because when all those banks went broke, Uncle Sam stepped in and made the people whole. If Uncle Sam hadn't done that, there would be zero trust in the banks.

As far as relationships go, when was the last time you went uP to a counter and physically made a deposit or physically withdrew cash? Your relationship with a bank is with a piece of plastic.

LACKRITZ: Let me make two points. One is a cheap shot and the other is a serious point.

It's hard to understand why banks would have a sense of smugness about the trust the public has in them, particularly after the string of bad loans they've had in Latin America, or the investments they've made in real estate and other areas that these paragons of trust have presumably engaged in. I find the premise difficult to swallow.

But more seriously, one of the principles of securities law is to know your customers. As an industry, we are spending a lot of time on training our professionals to foster a relationship of trust so that the one or two bad apples who pop up in the press don't smear the rest of the industry.

Q.: How do you see the broader financial services industry changing over the long haul?

LACKRITZ: You will have some companies who are virtual supermarkets of services, other companies will have focused on a particular niche, others will focus on a geographic niche.

Overall, you will have a fairly rich diversity of providers with aggressive competition at every level.

Q.: Will that competition be competing for the same size "pie" of money to be managed? What place will banks -- which now control about 25% of wealth -- have in this fragmented market?

O'DONNELL: The pie will definitely be thicker. As for the future, I'm a better historian than prophet.

LACKRITZ: There's always going to be a need for safe, sound, secure investment. There is always going to be a role for the depository institution.

The question is how much of a role. There is a point at which it stabilizes and I don't think anyone knows what that point is.

Q.: Finally, what will it take to make sure the financial services "pie" grows large enough for everyone?

LACKRITZ: The demand for capital around the world is great, but the question is where is that capital going to come from,

There is one thing we can make common cause with the banks and others around and that is the concern we have that our savings rate nationally is too low. We are working to increase that rate to make sure the pie does get bigger.

One way we are doing it is to try and restore full [income tax] deductibility of individual retirement accounts.

That will benefit banks, mutual funds and the securities industry. It will benefit the entire country.

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