Trade Groups at War: Main St. versus Wall St.

The founder of the Independent Bankers Association of America, the late Ben DuBois, had a bank in the west central Minnesota city of Sauk Centre. The bank was located on Main Street in that city, the same Main Street made famous by Sinclair Lewis in his book by that name.

Today Ben's IBAA and its natural constituency of small-business owners, ranchers and farmers, retirees, union members, merchants, and individual citizens are the "Main Streeters" of the erupting "war of the streets" alluded to by Robert M. Garsson in his July 25 article about the battle of the banking trade groups. It's Wall Street versus Main Street, plain and simple.

The American Bankers Association is in the point position for the "Wall Streeters," with the Reserve City Bankers and the Association of Bank Holding Companies having signed on as allies in support of the Treasury/ Brady/administration proposal that many feel would do more to reshape than to reform commercial banking.

With the emergence of this open warfare in 1991, Ben DuBois may be resting in peace for the first time since he died a decade ago. Ben was singularly dedicated to the cause of independent banking, and he considered it a tactical error to give one's adversaries time to reload. To him a 20-day hiatus in a battle was unheard of, to say nothing of 20 years.

Disparity Used to Be Greater

Mr. Garsson's article made mention of the vast disparity between the ABA, with its $21 million dues income and 423 employees, versus the IBAA's $3.5 million dues income and only 50 employees. In the early years, that disparity was even greater. But fired up by the indomitable spirit of the populist DuBois, a tiny bank of small-town bankers stood firmly in defiance of the bid by the regional and money-center giants to consolidate their awesome power by eliminating their smaller competitors.

This showdown between the two rival philosophies was an impressive display of courage by the IBAA, while, at the same time, it forced the ABA to face up to the dilemma of trying to serve two masters.

The Wall Street banks have refused to relinquish their long-established dominant role in the senior banking organization, but now, for the first time, the Main Street bankers have an alternative available to them.

Role as Correspondents

The once key correspondent relationships that were mutually beneficial to the larger money-center and regional banks as well as to the smaller, independent local banks lingered on and were instrumental in keeping the lines of communication open and courteous for nearly half a century.

In the early 1970s, however, the correspondents began blatantly pirating business-loan customers from their smaller respondent bank "friends."

For several years the small bankers refused to believe such violations of business ethics were anything more than isolated incidents - until it happened to them.

Treasured Perks

For some who had been wronged, the free ticket to professional sporting events, annual wild-game feeds, and bountiful bowls of fresh shrimp at convention hospitality rooms were just too much to give up. They chose to keep their name on the invitation list of their "pirate" friends for several years. And when the final disunion occurred, it was the moguls in the ivory towers who said, "It's over."

The delay was costly, what with the big banks increasing the required compensating balances in correspondent accounts and their continued practice of selectively pirating prime business accounts.

This era of ambivalence made it difficult for the IBAA to "go to war." After all, they had to be assured that their troops would concur with the decision to engage the enemy.

Problems Crop Up at ABA

What appears to have worked to the advantage of the IBAA in "militarizing" their forces was, ironically, several problems developing over at rival ABA headquarters.

For most of its existence, the ABA had been considered invulnerable. Used for most of the past half century as a vehicle for the promotion and support of proposals and office seekers in tune with Wall Street, the organization had reciprocal support from that sector whenever a problem arose.

During the 1980s, however, the romance between the big banks and the ABA - which many said was made in heaven and destined to last forever - ran into some problems. The big boys on Wall Street got themselves into some serious, life-threatening situations, two of which involved loans to lesser-developed countries and the financing of leveraged buyouts at home. These self-inflicted wounds still bleed, and the ABA has been forced to support some bad and self-serving proposals aimed at bailing out the big guys.

Complicating matters for the ABA is the probability of several mergers between giant banking corporations, along the lines of the recent Manufacturers Hanover/Chemical Chemical hookup. Unlike the smaller banks, big banks have a lid on how much membership dues they must pay the ABA.

Shrinking Dues Income

The result: When two banks paying the maximum dues of $125,000 merge, ABA dues income drops a cool $125,000, effective the next billing date. Furthermore, in the past 10 years regional and money-center multibank holding companies have been enlisting something less than their whole stable of chartered banks as ABA members or of converting all but one of their banks to branches, which has a similar but slightly less harsh impact on ABA income.

The ABA has put itself between the proverbial "rock and a hard place" with its frontal attack on the IBAA. Now if the ABA moves closer to the IBAA position on the so-called banking reform proposal, the Bank Holding Company Association and the Reserve City Bankers will flex their muscles to show their displeasure.

Conversely, if the ABA continues to pander to the big banks on such matters, its loss of faith with the smaller banks will likely speed up the membership exodus in that size category. At the same time, the IBAA has positioned itself well with the formation of the Main Street Coalition.

Meanwhile, Bush's bank reform bill is contrary to the public interest.

It is absolutely false in its purpose. It ignores the words of caution expressed by some leading banking experts. Aspects of it that are not strictly special interest are coincidental. It would not put the designated beneficiaries back on their feet, but instead would add one or more new industries to the list of those in need of federal assistance.

Congress should recapitalize the Bank Insurance Fund and then commit this legislative proposal to the trash heap. It is so bad it is beyond simple repair.

The official title of the bill is "Financial Institutions Safety and Consumer Choice Act of 1991".

Uttering the title while under oath might well subject one to a charge of perjury.

Mr. McCrady heads McCrady/Midwest, a business and trade consulting firm. From 1976 to 1988 he was executive vice president of the Independent Bankers of Minnesota.

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