The attenuation of privilege and monopoly has always been a deep cause of concern for those members of society who enjoy one or both of these advantages. Throughout history, the erosion of the power of kings and princes was never greeted with enthusiasm by members of the court. Sometimes those social movements which disturb the status quo and send shock waves through the power elites are caused by new technology which changes the way we look at things. This is an old phenomenon stretching back through history. In the seventeenth century, Galileo's telescope was one example of a technology which dramatically changed society. J. Bernard Cohen summed it up this way: Astronomy was never the same again...the telescope produced a vast change in kind, magnitude, and scope of the data base of astronomy..."

The destruction of the long-held belief that the earth was the center of the universe was badly received by the leaders of the church and many other elites. Indeed, Galileo was made to kneel before the Pope's Tribunal in 1633 and renounce his writings in support of the Copernican theory. But even the combined power of church and state could not, in the end, defeat a scientific fact. As each new frontier is explored, the fresh insights which are revealed bring pressure on the political process. More often than not, change is resisted, as the status quo always has more advocates than do the innovators who attack it.

This is entirely understandable since the way things are is comfortable, known, and controlled by an establishment grown accustomed to its privileges.

The sequence of challenge, response and change is repeated endlessly in society. Today it is happening in the financial services business in America. Some of the actors involved in our current drama believe the attack on their monopoly position in the market is something new under the sun. In fact, today's revolution in financial services has many parallels in our commercial history. Some of these past events are so similar to what is happening in American finance today as to be almost uncanny.

Although we now take for granted the J.C. Penney store in cities all across America, nationwide retailing was not always greeted with applause by the owner of the town's general store. In the first part of this century, California became one of forty-one states that attempted to block chain store competition by the adoption of heavy license taxes. Local merchants viewed the breach of their monopoly by retail chains with alarm and complained to their legislators. If one substitutes "bank" for "chain store," the arguments we are hearing today are almost unchanged. The California Senate and Assembly, under heavy pressure from local merchants, by overwhelming majorities passed legislation to levy a punitive tax on chain store outlets. This was not, however, the end of the story. California had then, and still has the practice of putting issues directly to the people through Propositions printed on the ballot.

The chain stores took advantage of this device and succeeded in getting a Proposition on the ballot to repeal the tax. When the people had a chance to vote directly, 57 of California's 58 counties opted to kill the tax. Today J.C. Penney and Sears are welcome in the thousands of communities where, incidentally, many local merchants still flourish.

Not only is there a clear parallel to the current debate on interstate banking, but also some of the same players were involved. Former Congressman Wright Patman of Texas was as staunch a defender of hometown merchant monopoly as he was of hometown banking monopoly. In 1938 under Patman's leadership, a bill was introduced in Congress that would tax chain stores that had more than 500 outlets; $1,000 per store multiplied by the number of states in which they operated. A historian, Thomas DiBacco, has pointed out that if this tax had been applied to Woolworth's 1,864 stores in 48 states plus the District of Columbia, it would have come to $81 million, although Woolworth's profit in 1938 was only around $28 million. The tax proposed by Patman gave new meaning to the word punitive. Fortunately, the bill, like many of Patman's, never passed, and the consumer was not deprived of the benefits of competition. While the legal battle raged, technology intruded to change dramatically the way goods and services were merchandised.

When the people in small towns in America were truly isolated, big city retailers could unload last year's fashions on them, secure in the knowledge that the townspeople were unaware of the latest offerings of Paris couturiers. Today T.V. has changed all that. The people in the town of Running Deer see the same T.V. programs and commercials as do people in New York or Los Angeles. No longer will they buy last year's fashions or eat only local food. This new fact of life has forced retail managements to change their way of thinking, and those who are unable or unwilling to do so have gone out of business. The same thing has happened in consumer financial services. That great consumer rip off called Regulation Q was killed by the Merrill Lynch salesman peddling money market funds at market rates of interest in towns and cities across America. People know the difference between 5% and 10% and they flocked to the money market funds in order to earn a fair return on their savings. Regulatory distinctions and state borders suddenly become irrelevant.

The million or more residents of California who hold credit cards issued by Citibank couldn't care less where the bank's processing center is located. The customer is uninterested in the fact that when he or she calls an 800 number the call is routed through a satellite and received in Sioux Falls, South Dakota. All he or she wants is service. Richard Ross recently said it all when he wrote in the Wall Street Journal: "Consumers don't want banks; they want delivery systems for financial services..." and "the reason no one talks about reregulation benefits for consumers is fairly obvious: there aren't any."

All of these developments pose problems for establishments of all kinds. Just as television has knit together the American market, the convergence of computers and telecommunications has created a global market for ideas and money which is a brand-new state of affairs in the world. This new global infrastructure is not made of concrete and steel, but built on technology. Because the reality of this global market is a difference in kind, and not only of degree, it has truly changed the world. Just as the railroads became the iron strap that bound the American continent together, so today data moving by satellite and cable bind together a global marketplace in an even tighter grip. This new state of affairs is as unsettling to many power elites today as was the Copernican theory in the 16th century.

A dramatic example of the way in which we have tied our world together occurred in the mid-1960s when it was reported that a thief cut a twenty-foot section out of the land based link in the Washington/Moscow hot line where it runs near Helsinki. Fortunately the satellite link remained operative, otherwise the fate of the world might have been at risk. This new global system has brought both benefits and problems which may appear to be unique, but are only variations of old themes. The automobile damaged the profits of the railroads, but at the same time helped create shopping centers and gasoline chains, and gave rise to our continental highway system. New electronic technology is now threatening the status quo and will, like all change, produce winners and losers. Financial deregulation can only be understood against the broader background of the effects of technology on everything, from the way we use a C.A.T. scanner in medicine to the role of lasers in defense.

The convergence of computers and telecommunications produces a world society increasingly dominated by an almost unlimited and constant flow of data. To call this an information intensive society is accurate, but somehow understated. Not only have satellites made a mockery of national censorship, but today the streams of electrons that carry information about your money, your airline reservation, or your favorite TV program, are indistinguishable from those that carry news dispatches from all over the world. The profound effects upon society of this phenomenon have yet to be fully appreciated. Political, regulatory, and economic concepts and compacts suddenly lose some of their relevance, and everyone, from business people to politicians, has new issues to worry about.

Prior to the late 16th century, economic and political systems were largely separate. Often countries had cities which specialized in trading on an international scale while other towns in the same country dealt basically in local produce. Generally speaking, there was little direct connection between these two types of cities. Both kinds of economies functioned almost independently from a central government. As soon as the sovereign began to issue money and create credit, things changed. Economic systems began to be integrated with the political systems, and the modern economic and political state was born.

Today, any government in the world that announces a change in its fiscal or monetary policies can find out in a matter of minutes what the world thinks of the development by watching the cross rate of its currency which appears almost instantly in the currency markets in London, Zurich, New York or Tokyo. Clearly the information standard has replaced the gold standard and in its own way is even more severe. Those people who call for monetary conferences to design a new international monetary system are too late -- we have one. There is no place to hide on this planet, and unlike the gold standard or the Bretton Woods arrangements, no nation can renounce the information standard and go its way because there is no way to escape the data on the Reuter's screens.

There is no longer enough money in the world to maintain a currency's value in the face of bad government monetary and fiscal policy. It used to be that political and economic follies played to a local audience and their results could be contained. This is no longer the case.

This information intensive global society erodes the very concept of sovereignty and forces us to rethink even the role of central banks in issuing currency. If, in the longer term, a sovereign cannot control the movement of the nation's capital, which it cannot; and if a sovereign cannot control what the citizens hear and see, which it cannot -- and in some cases, like the United States, cannot control immigration across its borders -- then clearly we are no longer living in the same world with Colbert, or in the same age when most of America's banking laws were written.

This erosion of centralized government control in the information intensive age has reinforced the federalism built into the United States Constitution. As Washington procrastinates on bringing the banking system into the 20th century, the states have not waited nor have the financial institutions. It is getting harder every day to define what constitutes a financial institution, and even harder to delineate what one does. Getting into the financial service business is in almost everyone's long-term strategic plan. Recently the American Banker ran a table of cross-industry ownership of U.S. commercial banks as of August of last year. The list occupied two full newspaper pages, covering such well known names as Gulf and Western Corporation, Beneficial Corporation, J.C. Penney, Prudential-Bache, the International Brotherhood of Boilermakers, Travelers Corporation, Merrill Lynch, Sears, R.H. Macy, along with others. The ability to have the right stuff to own a commercial bank is now broadly spread across all of industry, and the convergence of insurance, brokerage, underwriting, factoring, leasing and banking is moving rapidly forward.

In an effort to compete with all these new entrants banks began to leave the Federal Reserve System, since the earning penalty associated with reserve requirements and the cumbersome approval process required put them at a real competitive disadvantage. From 1965 to 1980, the number of banks supervised by the Fed fell by 800, although, incidentally, the Fed staff grew in the same period from 648 to 1525.

In the halls of Congress, special interest groups fighting to maintain their product or geographic monopoly produced a political gridlock. In the face of this, state governments have stepped in with their own programs. Every governor knows that financial service businesses create jobs, that banks don't pollute or attract undesirable elements, and that the consumer benefits from competition. Looking at these facts, one state after another has passed laws inviting out-of-state banks to set up shop within their boundaries. The degree of powers the states permit out-of-state financial institutions to exercise varies from full reciprocity -- as in New York, Maine, Alaska, Arizona, Maryland and Washington -- to limited purpose, as in South Dakota and Nevada. All in all, 28 of our 50 states have now put on the books laws approving some form of out-of-state bank powers. As the eddy becomes a tide, more and more states will want to attract and create jobs and so will join the ranks of those whose legislators will write and pass new banking laws.

What this all means is that the customer can look forward to increased competition for his or her savings and credit business, both from banks and other financial intermediaries. The world can look forward to the continued integration of the international economic and financial marketplace which even today can and does move money, information about money, and ideas to any place on this planet in minutes. This has been a quantum jump in the efficient channeling of money and capital flow. The genie will not go back in the bottle, the technology will not go away. Indeed its development will accelerate and we must all learn to live with it. The Federal establishment often describes these developments as untidy or unplanned and infers they must, therefore, be undesirable. The state authorities see it differently.

One of the most visible effects of this state of affairs is the pressure it puts on management. Regulated industries have rarely attracted the brightest and the best because the latitude given to people to think and manage has been limited. This was true in banking as in other government-controlled business. If the cost of your money inventory is controlled by Regulation Q and the price of your product is regulated by usury statutes, there is little challenge left to attract good people, and even less to let them manage. For many years, the 3-6-3 rule governed the man in the grey flannel suit. Pay 3% on deposits, charge 6% on loans and be on the first tee at 3 o'clock. All this has now changed faster than many managements can recruit and train men and women to compete in the new world. Banks which had been professionals with other people's money were actually amateurs with their own. Few had a real budget process, long-term strategic plans, liability and liquidity management skills, marketing people, technological experts, or even general management expertise. While credit skills are essential, they are no longer enough. Like the railroads and the airlines before them, the banks have had to learn to build management expertise in order to compete in a world where there are some 50,000 U.S. financial intermediaries, to say nothing of the rest of the globe, all playing on a very uneven playing field. Those who wish to survive have to take a clear-eyed look at a rapidly shifting marketplace. Nostalgia will not help.

Now that the commercial paper outstanding in the New York market exceeds all the C & I loans of all the New York banks put together, it should be clear that yesterday's products and practices are not adequate to survive in tomorrow's world. Some banks have chosen niches in the market, some have become more universal, some will fail and join the more than 15,000 banks which have disappeared since the 1930's.

But even as some cannot make the cut, new entrants flood the market. Last year, Americans started 438 new commercial banks, savings banks, and savings and loan associations, to say nothing of 97 new credit unions. Texas led the way with the chartering of almost one-third of all new institutions.

All in all, nearly twice as many banks opened in 1984 as in 1979. So despite all the highly publicized troubles of a few institutions, new opportunities will be created -- indeed are being created as deregulation proceeds. Like any free market, it looks untidy to those who long for simpler days, but it works. All revolutions create great hazards, and this new information intensive world, where rumor travels with the same speed as truth, is no exception. In thinking about how we manage our way through this new world we are always in danger of fighting the last war, or revisiting the argument advanced by many early experts that airplanes would have no military use. In the same manner that the airplane revolutionized warfare, today major shifts in the technological structure of society affect all corporations and governments, and thus all the customers of banks. Some of these customers will fail, some will cope, and some will prosper. All of this turmoil will call not only for improved credit skills, but also for better management. The people to supply this management must constantly be recruited, trained and deployed against a shifting mix of customers. But as if this were not enough, there are even more changes on the way bringing fresh challenges.

It can be argued that in addition to the convergence of insurance, banking and brokerage dealers, the financial service business and the information service business are fast becoming indistinguishable. One does not have to look very far down the road to see that these two industries will be as close tomorrow as are computers and telecommunications today. This new development will bring, indeed is bringing a whole new group of players onto the field. Dr. Oettinger of Harvard puts this process in graphic terms: "Computers...are the solvent that has leached out the glue from the traditional institutions." This process is ongoing and there is little reason to think it will slow down or stop.

In saying this, I am not suggesting that tomorrow our successors will not still be lending money, or operating a national and global payments system, or selling credit cards or home loans, or supplying other financial services--they will. The delivery system for these services will change as the market changes. As always, our society will be market driven and tomorrow's survivors will be those who listen and respond to what the customer wants. Even the finest technology will not save those who fail to understand and meet the customers' needs at a price he or she will pay and in a manner and place of the customer's choosing. For those that do successfully adapt to this new world, the future is bright.