Testimony given at the U.S. Senate Banking & Currency Committee
Wriston, Walter B.
2007
My name is Walter B. Wriston. I am the newly elected chairman of First National City Corporation and its subsidiary, First National City Bank, which two enterprises would be directly affected by pending bank holding company legislation. In reviewing the previous testimony I have tried to identify the critical issues in order that my testimony may be relevant, constructive and brief. It seems to me that there are three main questions which reoccur in these hearings and to which I would like to speak. | |
1) Is the one-bank holding company organization a device to abort or circumvent the intention of Congress to separate banking and commerce and to frustrate the public interest? | |
2) Does the absolute size of our bank and other money center banks encourage domination of local and national markets? | |
3) How could the public interest best be served by the Congress and by bank holding companies and banks? | |
The first of these issues raises the question of (1) Why we formed a one-bank holding company? There was nothing mysterious in the decision. By the mid 60's it was apparent to us at the Citibank that the people of the United States, individuals, businessmen and industrial corporations alike, required financial services of a scope and nature not dreamed of twenty years ago. The consumer wanted us to finance television instead of stereopticons; he wanted to ride in jet aircrafts in addition to railroads and steamships. The genius of our economy provided him these things. By the same token, he wanted a whole new variety of financial services that were previously not only unnecessary, but unknown. Often he wanted to lease or rent things rather than own them. Above all, the general public demanded a variety of our financial services. | |
Assessing this scene we came to the conclusion we could best fulfill our obligation both to our customers and to that part of the public who are our shareholders by reorganizing as a financial congeneric corporation. The establishment of First National City Corporation will, hopefully, make it possible for us to accommodate the present and future demands for financial and financially related services with due regard for limitations imposed upon commercial banks by law and regulation and without compromising the integrity of the commercial banking system, or in any way jeopardizing the interests of depositors. | |
A technological explosion has impacted the banking system almost as dramatically as the aerospace industry. This changing technology made the management of large banks increasingly complex. It requires that our officers and staff not only use new scientific advances, but it often requires us to employ skilled technicians not accustomed to working in the environment usually found in a bank. It requires that they be compensated in ways not customary to our business. It requires that they climb career ladders to which bankers are not accustomed and be given corporate titles and other rewards which were unknown to the classical business of banking. | |
The "why" of the First National City Corporation is, therefore, our effort to respond to the demands of today's public without damage to the traditional forms of financial business. We do not seek to expand beyond the confines of financially related businesses; we are not equipped to run a department store or manufacturing company, and we do not want to do it. We are, we believe, singularly well equipped to provide a wide variety of financial services that the average American now has or will require in the days to come. | |
(2) The second question that has reoccurred in these hearings is concern that sheer size may lead to domination of local and national markets. | |
In some quarters, it is believed that the one-bank holding company provides a royal road to the Japanese system of Zaibatsu, under which a handful of great financial and industrial combinations will dominate the U.S. economy. | |
What this notion overlooks first is that there are no comparable antitrust laws in Japan, nor any counterpart of our Justice Department that continually overlooks the state of competition. In this country, there is a very effective combination in restraint of potential Zaibatsus, as will be developed later. | |
The Zaibatsu syndrome also overlooks the restraints upon some 14,000 banking institutions imposed by the branching laws of 50 states, each autonomous within its boundaries. | |
In thinking about sheer size, the number of zeros in our balance sheet must be viewed against the background of the total of financial aggregates. The percentage of financial assets outside of the commercial banking system has grown several times as fast as has the banking system itself. In fact, from 1956 to 1968 the relative position of commercial banks declined from 53 percent of the total assets of financial institutions to 50 percent. Moreover, there is no distinguishable trend toward concentration in the commercial banking industry. At the end of 1939 the fifty largest commercial banks held 39.6 percent of the total assets of all commercial banks in the U.S. At the end of last year, the share of assets held by the fifty largest had drifted down to 36.2 percent. | |
Concern for size also overlooks the economies and indeed the necessity for size in our growing economy. | |
For example, in 1947 the limit we could lend to one customer was $24 million. That sum then would have financed about 190 DC-3's. Today, our lending limit is about $90 million per customer. That sounds big; it will pay for only four 747's. | |
It's a big world requiring big organizations to finance the trillion dollar economy. Over the next decade, corporations will need $1 trillion for plant expansion and working capital. Moreover, H.U.D. has estimated housing could represent a demand for funds of over $400 billion in the next 10 years. Urban renewal and city rebuilding could easily consume many billions more between now and 1980. In short, this country and the world faces a capital shortage in the coming years; and legislation that hobbles the service efforts of the commercial banks must hobble the economic growth of this country and the world. | |
(3) With respect to the dangers of legislation now, I hope my remarks will not be considered as reflecting upon this Committee. | |
However, I believe we run the risk of dealing with a potential peril--at most, no more than that--whose dimensions, even in their potential, have been grossly exaggerated. We are in danger of developing an arsenal of law and regulations, without knowing as much as we need to know about the nature of the problems toward which they are aimed. | |
It is my view that we should take an opposite approach: Throw off some of the shackles on banking which inhibit competition in the financial markets. We should open up banking and financially related areas to permit entry of new people with new ideas, rather than build walls around what presently exists because we are fearful of the future. These are ideas that you will undoubtedly recognize as the essence of Senator Proxmire's statement upon the introduction of his bill. | |
It is also my view that very adequate and effective barriers exist to prevent overreaching by banks and by bank holding companies. It has even been implied in these hearings that bank regulators always respond affirmatively to banks. Well, in our case, we attempted to acquire the County Trust Company through a registered bank holding company in 1956. After hearings before the Federal Reserve Board, that application was denied. We subsequently attempted to acquire the National Bank of Westchester by merger. After hearings before the Comptroller of the Currency, that application was denied. | |
More recently we acquired a 50 percent interest in Carte Blanche Corporation as a means of accelerating entry into the burgeoning credit card field. After review by the Justice Department, they urged we divest, and we did so. | |
In the very recent past, we attempted to acquire The Chubb Corporation as a means of entering a field we considered to be financially related to banking. The Justice Department opposed that acquisition and we desisted. | |
I cite this record because legislation does exist empowering the Federal government to control the manner and rate of expansion of all bank holding companies. I do not argue that these are not valid continuing concerns of the Congress. However, we are increasingly conscious that the classic bank regulatory agencies are supplemented by a team of agencies and departments that oversee specific activities of banks and holding companies. | |
In the last year, banks have received the attention of the SEC in connection with entry into the mutual fund and commingled account field; of the Justice Department, as mentioned before; of the Federal Trade Commission which in March disclosed it would seek a court test with respect to distribution of unsolicited credit cards, and the Department of Labor has intruded itself through the Welfare and Pension Disclosure Act of 1958. The Federal Home Loan Bank Board, which you might not normally think would be concerned with commercial banks, appeared last month when the Senate adopted S. 3685 dealing with mortgage financing. The Internal Revenue Service has been in the headlines regarding the treatment of tax free municipal bonds in bank portfolios recently. The Treasury Department, which was always important in our regulatory life, now proposes legislation regarding foreign bank accounts owned by American citizens. The Department of Health, Education and Welfare became involved in our business in connection with incentive allowance on student loans. The Federal Communications Commission took an interest in banks with the proposed rule to the effect that a bank trust department's aggregate holdings of more than three percent of the stock of a broadcasting company would be deemed to constitute control. | |
What seems to be emerging is a division of labor in bank and bank holding company watching. It is not a bad principle. The classic regulatory agencies might concentrate on the original purpose of bank regulation, which has always been to assure that the depositor will get his money back when he needs it. The other agencies and departments are concerned with aspects of our other financial activities. This seems to me to make sense. After all, the one-bank holding company was initiated to separate a bank's conventional operation from other financial services. | |
Having in mind the regulation, possibly the over-regulation, to which we have been classically subject, and being very mindful of our responsibility to satisfy a host of new agencies, I honestly fail to see the need for additional defensive or preventive banking or holding company regulation at this time. | |
Not only are we conscious and respectful of all the additional elements of regulation which have been brought to bear recently, but we are equally cognizant of increased offerings of financial services by unregulated competitors. Since a smaller and smaller proportion of the credit granting capacity of the country resides in the banking system, it is clear that the job of the monetary authorities becomes more and more difficult. This is only one of the compelling reasons which argues that the time has come to take a comprehensive national look at all our financial institutions. Since no testimony has been offered to demonstrate that abuses exist in the one-bank holding company arena, there would appear to be ample time for the completion of such a study on how best the financial structure of America could be positioned to serve the public interest, before attempting to enact specific legislation. | |