Luncheon speeches, like most after-dinner speeches, it has been said, consist mainly of clichés I will try to uphold the tradition.

I have three of them in mind.

The first is that "generals always prepare to fight the last war instead of the next one." That one must go back at least to Napoleon, and probably to Julius Caesar or Alexander the Great. It still contains enough truth to appear from time to time in our daily newspapers--as, for example, in the current debates over the defense budget.

A second cliché with which you may be familiar is the one that says, "Nothing is ever done in Washington until it has needed doing for so long that it is really time to be doing something else." I believe that George Washington himself was heard to say something very similar about our Continental Congress during the Revolution. Some might agree that the observation, though overworked, still contains a modicum of truth.

The third cliché is that "The customer is always right." You may not find much occasion to use that one, based on what happens to you in the department store or, for that matter, your bank. But it still contains a large element of truth. What it means is that success in the marketplace comes from giving the customers what they want, and the businessman who cannot or will not adjust to the customers' changing demands will eventually find himself out of business. This is also true of politicians, as every election shows.

What has all this to do with financial services, regulation, the law, and the way banks serve our society? The short answer is: Everything. In our new world of continuous technological revolution, there is still one constant: the market ultimately becomes whatever you and I, in our role as customers, demand. Advances in technology only serve to underscore this truth. Ours is not a static world in which public servants, bankers, or anyone else can merely rearrange the pieces to get the desired results, because the pieces keep transforming themselves into something new, and almost always unpredictable.

When the radio was invented and brought into commercial production, pundits opined that the phonograph was dead, that the record industry would be only a footnote in technological history. When television came along we were told with equal certainty that the radio business was on the way out. None of this happened, because entrepreneurs in the electronics industry followed the targets of opportunity and created a world which not one of them predicted. Thomas Edison himself believed that the principal commercial value of the phonograph would be its use by lawyers to record clients' last wills and testaments in their own voices.

Modern society is a mosaic made up of an ever-increasing number of these individual pieces, and the picture they create changes as fast as the pieces themselves. Charles Evans Hughes could go to bed on election night November, 1916, secure in the knowledge that he had been elected President of the United States, only to be awakened to the unpleasant reality that California had voted for his opponent and the election had been lost. Now we watch newscasters on the major networks, with the help of computers, projecting the "winner" of our national election before people in the western states have had a chance to vote. Setting aside whether this development is good or bad for our democratic system, it is a clear example of how technology is affecting one of our basic institutions. Its political impact is enormous. So is its effect on commerce and finance.

The flow of data around the world is now so huge and so diverse as to have worked a fundamental change in the world's economy. Every day, a computer system called CHIPS in the New York Clearing House processes the ultimate debits and credits of London Eurodollar trading in a volume approaching some 200 billion dollars. Even by Washington standards, that is a very large number. This market alone is now so huge and efficient as to work a difference in kind in international finance. It is not just more of the same: it is something new in the world. It has changed the world.

Since it is no secret that a very large percentage of the Third World population gets most of its information from hand-held transistor radios, it becomes clear that a satellite placed in orbit over Country X has made national censorship no longer effective. Governments may still censor local news organizations and search travelers at the border for currency and contraband literature, but the flow of information continues. In exactly the same way, U.S. laws protecting a local banking monopoly can keep American banks from crossing state borders, but dozens of companies not burdened with American banking charters can and do supply every possible financial service in every one of these protected enclaves. Customers are not really interested in where the computer is located as long as the service is provided. The new technology makes it almost impossible for anyone to frustrate the natural working of the free enterprise system, which always produces somebody ready to sell what people want to buy.

What is true domestically is also true internationally. Financial assets are now transferred around the country and around the world by precisely the same technology used by the press, radio, and television. This being so, it should be clear that protectionist economic policies and political efforts to control the flow of capital will fail just as surely as efforts to suppress news. They are, in fact, now inseparable.

We hear a great deal these days about the regulation of something called "transborder data flow." Laws are being passed and treaties signed. Members of the fourth estate might want to consider the interesting fact that there is no such thing as transborder data flow. The phrase describes no physical reality. The streams of electrons which carry our financial data and your news dispatches are identical; in fact, they usually travel mixed together. The same satellite which may carry the general ledger of Citibank from country to country also carries the latest AP dispatches and the front page of the . They are all riding, so to speak, in the same stagecoach.

The new phrase, "transborder data," is a legal fiction designed to establish the principle that some electrons should be freer to cross national borders than others. You might find it worthwhile to start keeping track of how governments and lawmakers propose to check our bank ledgers without simultaneously monitoring your news dispatches.

This is not the only current development which tends to place your industry and my own in similar positions. Washington is now a one newspaper town, a fact calculated to make the monopoly watchdogs in the Justice Department uneasy. Yet to be a city served by only one newspaper does not mean in 1981 what it might have meant in 1941. It does not mean that the has a monopoly on news and opinion in the nation's capital--as I'm sure the editors of that paper would be the first to agree.

Technology has long since abolished most possibilities for monopolizing news or opinion, and any backwaters which may remain will soon disappear. We have not only the network news shows lighting up the TV screens, but 24-hour news coming over cable, all-news radio stations in more and more cities and increasingly newspapers like the being printed in half a dozen or more places simultaneously, by satellite.

The banking industry finds itself similarly situated. There may have been a day when the only banker in town could dictate his own terms. But he can no more do that today than the proprietor of the town's only newspaper could keep his fellow citizens from finding out the truth.

The citizen living in the smallest town today has access to Merrill Lynch's Cash Management Account, for instance, and a toll free 800 number gives every person in any part of the country instant access to credit from one of the dozens of available credit cards. One toll free 800 phone call permits anyone to withdraw money from a bank account, and transfer it to a money market fund in Boston, Massachusetts, or anywhere else where the customer is offered a better return on his money. Despite this, the regulatory system simultaneously protects the local banker's mythical monopoly and affects to protect the local citizens from any possible misuse of that monopoly. Generals are not alone in their propensity to fight the wrong war, with the wrong weapons, at the wrong time.

Fortunately, the courts are now beginning to recognize the reality of the global marketplace in a way which still escapes some of our regulators and many in our own industry. Recently, the 5th Circuit Court of Appeals ventured the opinion that "there is a pronounced air of fantasy inherent in any attempt to define 'a market' for purposes of measuring anticompetitive effects of an acquisition." The Court went on to talk of the "economic realities" of the fact that a defined market "will inevitably exclude certain firms who, for at least some potential customers, are real competitors of the firms included in the defined market."

It is hard to deny the judges' logic when one reads the lead on a story in the Aug. 14, 1981, -- "A savings and loan association owned by the nation's largest finance company has made an agreement with the second largest supermarket chain in the country to put automated teller machines in Kroger Supermarkets throughout the state of Texas."

The story goes on to say that the S&L,called First Texas, "is thinking hard about getting involved in point-of-sale technology with Kroger ... The same scanning devices supermarkets use to read product identification codes on packages can be tailored to read debit card information and programmed to debit a customer's First Texas account and credit Kroger's corporate account."

Clearly if this comes to pass it will be a boon for the consumer. It also represents intelligent use of the new technology. In New York our Citicard gives our customers access to 24-hour banking seven days a week. We invested some $250 million in that technology, and the customers have responded enthusiastically by using our network over 60 million times a year. For us to extend such a clearly desirable service to people in New Jersey or Connecticut or Washington, D.C., however, is presently against the law--but only because we are a bank. It is not against the law for anyone not burdened with a bank charter to supply the service, as American Express and Beneficial Finance have demonstrated. In military terms, this amounts to being told that if you want to use modern weapons, stay out of the Regular Army.

While the news business, as you well know, is also in a state of revolutionary change, you still retain the capacity to compete in the marketplace. The battered Underwood upright typewriter in the news room has given way to the word-processor and the dog-eared clipping file has made way for a sophisticated data bank with an on-line access terminal in the news room. Your public has become accustomed to watching far-away events take place before their eyes in living color, relayed by a satellite some twenty thousand miles out in space, or from a space ship filming Saturn.

Imagine what your situation might be if you were told to stick to your old Underwood and leave the word-processors and the data banks to someone else. IBM, for instance. It seems more than likely that, under those circumstances, you would soon be out of the news business, and IBM and its competitors would be in it.

That is precisely the situation in which the American banking industry now finds itself. Where you have the First Amendment we have the Glass-Steagall and McFadden Acts. "For the businessman" Peter Drucker has said, "but also for the economist or politician--what matters is not 'prediction' but the capacity to act." What we need to survive is the right to act. We do not now have that right.

The results are what should be expected. In 1946 the commercial banks held 57% of the financial assets in our country. At the end of last year the percentage had dipped below 37% and was still dropping, a decline of more than one-third. A great deal of this decline is our own fault. Many of my colleagues in the banking industry have continued to assert the right to a "monopoly" in what they are pleased to describe as "their market" almost as if nothing had changed since the first bank was chartered in 1791.

The very definition of a market and of what constitutes a monopoly has been changed irrevocably and new competitors unhindered by archaic laws are rapidly taking over the financial services business. There is one thing that has not changed and that is the political resistance to change itself.

If there is still some truth in the cliché that nothing is ever done in Washington until it is really time to be doing something else, the reason is not hard to find. It is not because regulators and lawmakers are unintelligent. On the contrary, I have no doubt that the distribution of intelligence in Washington is statistically about the same as anywhere else. But our lawmakers are at the mercy of an ancient human phenomenon.

Machiavelli, who knew something about such matters, put it this way:

...it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new...

Anyone who has watched the lobbying process on Capitol Hill will agree that, in this respect at least, very little has changed since the 15th century. It is not really hard to understand why lawmakers and regulators are frequently the last to face the challenges of change. From their point of view, doing nothing must often appear the safest course of action.

Unfortunately, the same cannot be said for those of us who are being regulated. When Eddie Rickenbacker's grandmother learned that he was going overseas in the First World War to fly fighter planes against the Germans, she wrote him a letter urging that, if he insisted on going through with this, he should at least "fly slow and stay close to the ground." Such advice is well-intentioned, but it displays a certain lack of insight into the nature of aerial combat.

It is possible that Eddie Rickenbacker's grandmother had never actually seen an airplane. The reality of a physical event can sometimes make the point more strongly than words. I recently had an opportunity to physically position a small, portable plastic earth station in a window of a room on the top floor of the Citibank Headquarters in New York City. It was not hard to do. The disc was about the size of a large salad bowl and all I had to do was set it on the window sill in a prescribed manner. In less than a minute, a printer started to chatter out the Dow Jones running commodity report. As it happened, at that moment the Connecticut Bankers Association was suing to prevent us from opening an office for our finance company in one town in Connecticut. I could not help reflecting on the fact that we had just created what amounted to the basis for a commodity-trading operation in less time than it took some Connecticut lawyer to get his legal pad out of the desk and start protecting his client's supposed monopoly.

You are all familiar with this because such small earth stations now adorn the premises of virtually every medium size or even smaller newspaper in the country. You did not put them there because your publishers had found a way to circumvent the Justice Department's ruling against newspapers owning the local TV station. You did not get into satellite technology because it is a back door to broadcasting; you did it because you need the flow of information to stay in business.

We have the same problem. Banking is, in fact, a branch of the information business. One of the giants in your industry, Julius Reuter, was among the first to grasp clearly the relationship between communications and finance. During the financial crisis and gold rush in Australia in the early 1890s, Reuter set up a money-by-cable remittance system that could transfer funds less expensively than did the commercial banks at that time. This service was profitable, and very popular with the public, but predictably thoroughly unpopular with the banks.

Julius Reuter understood the fundamental relationships of technology, money, and information, and so do his modern successors. Reuter's latest annual report says:

"We connected four thousand more video screens and keyboards to Reuter's monitor services throughout the world. This brought the total number of subscriber units to 13,600. Reuter monitor services enabled dealers in the foreign exchange, money, securities and commodity markets to retrieve the latest prices and news from Reuter's global computer system..."

The irrationality of our regulatory approach to these matters can hardly be exaggerated. In a recent far-ranging review of new telecommunications and computer technology. The put it this way: "The distinction between telecommunications and computers is now technological nonsense... The coming together of these two technologies, one new, the other old, has caused the French to invent the word, 'Telematics'..." Indeed, the goes on: "Not bureaucrats, not lawyers, not customers, certainly not engineers--can say anymore where data-processing stops and message-carrying begins."

Our own Federal Communications Commission devoted seven years and millions of tax-payer dollars trying to maintain that distinction before finally giving up. That may prove to be the first time in history when a government agency had to refrain from regulating something because it couldn't define it.

No one has ever defined with any precision the business of banking, but the history of Reuter's gives us a clue. The history of innovative banking parallels that of the great news-gathering systems, for good banking like good journalism is based on sound information speedily delivered. In the 16th century Jacob Fugger built the preeminent financial institution in Europe on fast couriers bringing news from agents stationed in Spanish America, Mediterranean Africa, and the Orient. The Rothschilds later built a legend and a fortune on the ability of their agents to obtain and transmit news by the fastest possible method.

While the technology has changed--carrier pigeons have given way to transponders--the basic enterprise remains the same. But while American banking is still barred from utilizing the full potential of new technology, and from meeting its non-bank competitors on equal terms by supplying sought-after services, commercial firms have been moving steadily, creatively, and energetically into banking, to fill the vacuum. I might add that this process is actively encouraged by some corporate executives who love to make speeches at black-tie dinners urging everybody to support free enterprise, but who then return to their desks the next morning to sue banks in an effort to prevent them from, for example, operating data processing centers on the quaint theory that data processing is not connected to the business of banking.

Meanwhile, most of the Fortune 500 companies have been combining commerce and banking in very significant ways on a lot of different fronts. The Chairman of Sears is quoted as saying, "Our goal is to become the largest consumer-oriented financial service entity." General Motors has a non-consolidated subsidiary called General Motors Acceptance Corporation which has more assets than the 9th largest bank in the United States, and last year earned more than the 4th largest bank in the United States.

You may have noted that last week the National Steel Corporation acquired two more savings and loan associations in a coast-to-coast merger made possible by roughly $10 million a month in subsidies from the Federal Savings & Loan Insurance Corporation. That is the largest merger in S&L history and creates a national institution with offices in California, New York, and Florida. Some observers might call that interstate banking. Despite a Justice Department opinion that banks' acquisition of a Savings & Loan operation would not be anticompetitive, America's 14,300 commercial banks were effectively barred from the deal because, as an S&L attorney observed, "the bank board would have been reluctant to approve a merger with a bank." It is apparently acceptable to engage in interstate banking, but only if you are not a bank.

The public interest is always hard to define, and most people tend to see their individual purposes as congruent with that interest. We can all quote the scriptures to suit our own purposes. In a city full of lobbyists all seeing a particular change in some law or tax as in "the public interest," it is difficult, if not impossible, to get a consensus on what really constitutes the national welfare. This is an old quandary and has had only one successful answer. F. A. Hayek, the Nobel laureate, put it this way: "... the prime public concern must be directed not towards particular known needs but towards the conditions for the preservation of a spontaneous order which enables the individuals to provide for their needs in manners not known to authority..."

Americans have been providing for their own needs in manners not known to the authorities since the beginning of our history. The authorities were not involved when the people at Bell Laboratories invented the transistor, or when Mr. Bloomingdale invented the credit card, of which there are about 700 million issued, or when a brokerage house invented the money market funds so that savers could no longer be forced by federal law to subsidize borrowers. The public interest is not and cannot be served, by attempting to delineate every last item in the economy in the manner of Louis the 14th's finance minister, Colbert, who prescribed the size of a handkerchief and the length of a fishing boat.

The public interest is served by letting Americans choose their products and services in the marketplace, the way they choose their representatives in the political marketplace.

That is not what happens when--as right now, for instance--the Depository Institutions Deregulation Committee--set up by Congress to deregulate savings instruments--churns out endless pages of new regulations on the interest rates that may be paid, the length of the maturity of the instrument, the penalty a saver must bear if he wants to withdraw his money early, the wording of advertisements, and how the mathematical calculations must be made. Americans, being intelligent, know the difference between 5% and 20% and pull their money out of bank accounts and invest it where the yield is better. The result is that the public puts some $150 billion in money market funds, and some more elsewhere and banks lose $200 billion of savings accounts.

The money market funds were created, in Hayek's words, to provide for the individuals' needs in a manner not known to the authorities. In fact, the funds have the effect of protecting the public their authorities. The banks have the skill and the wherewithal, but not the legal right to run their own money funds. Apparently managing money, like data processing, has nothing to do with banking.

Whether the government--any government--is justified in interfering with individuals' attempts to meet their own needs is more than an economic question. There is also a moral issue. The net effect of regulations on interest rates, for example, is to make the working man or woman who saves accept less for the use of his or her money than it might otherwise earn, and channel the difference into somebody else's pockets.

For a government to hold the interest rate banks and thrift institutions can pay to savers below the inflation rate, and then berate our citizens for not saving money makes no sense. Our national savings rate is low because our government provides tax incentives to borrow and puts a penalty on savings. This policy is both irrational, and inequitable but effective.

No one has ever explained to me why the proverbial little old lady with four or five thousand dollars worth of savings should be compelled by her government to accept 5% interest so that somebody else can get a low cost mortgage on a &500,000 house.

Fortunately, that is no longer inevitable. Technology and entrepreneurial ingenuity are bringing equity into the financial markets despite the most authoritative efforts to prevent it. The small saver can now demand the same returns as the rich. This is a trend to be applauded. If it is hurting the banking industry--which it assuredly is--it is only because we are the one industry still prevented from doing what is obviously the right thing to be doing--and the only thing the American public will henceforth accept.

The strength of America's economic system is directly related to the degree of freedom enjoyed by its business. Free competition, simply stated, delivers the best products at the best price. This applies to banking as well as other economic sectors. And there is no question that the nation's economy, as well as individual Americans, would best be served by--and eventually will be served by--true national banking, where banks can compete freely not only with each other but with other institutions offering financial services.

Just three days ago, Secretary of the Treasury Regan told an audience in Chicago:

"A national debate on this issue is overdue, and what I hope I've achieved here this evening is to sound the opening note in that debate."

What I've tried to do here this afternoon is to second the Secretary's-motion.

Thank you.