Woes Seen Steeling U.S. Banks for Global Fray
ATLANTA -- U.S. banks, unlike most of their counterparts in Europe, are strengthening themselves through adversity, said Robert Forrestal, president of the Federal Reserve Bank of Atlanta.
The difference, Mr. Forrestal said in a speech to the Institute of Management Accountants, is that many European bank franchises are virtual monopolies, giving little incentive for major structural change.
U.S. banks will be stronger by the end of the decade, he said. They will be able to compete with the biggest global banks after having "trimmed their weight through consolidation and trained their managers to think innovatively."
Realizing Paper Savings
Mr. Forrestal also noted that, after consolidations are completed, merged institutions should convert their "on-paper" cost savings to real savings. He conceded it would take "a certain ruthlessness" to do so.
"If banks cannot meet their target for lower costs and higher profits, then there may be a slowdown in the number of mergers," he said.
"Overall, though, as bank stock prices and equity values go up, there should be another wave of mergers down the road."
Credit-Card Cap |Ridiculous'
He criticized Congress as unable to pass wide-ranging reforms to ease banks' entry into the securities, insurance, and mutual fund businesses.
And he called the recent proposal to cap credit card interest rates "absolutely the most stupid, ridiculous thing I've heard of in my life," in terms of both "substance and timing."
With public confidence in banks at a low ebb, he said, "a legislative proposal like that to allocate credit -- which is what it was -- is very, very irresponsible."
Mr. Forrestal also said federal regulation of banks has not been unduly harsh or inconsistent.
"The worst thing we can do -- and this is something that the Congress pushes from time to time -- is to exercise forbearance that will only get the banks and the economy into more trouble in the end," he said.