"Mere size is no sin," William Howard Taft is supposed to have said, refuting the trust-busting philosophy of his predecessor, Theodore Roosevelt. (At the time of the apocryphal remark, Taft weighed 300 pounds.)
When a big bank on the West Coast decides to merge with a big East Coast bank, that doesn't bother me. All the stuff about synergies and cost-saving layoffs and global reach will be meaningless soon enough; future banking will be done on the Internet, every home a branch, and today's giants will be undercut by speedy cyber-bankers unencumbered by overhead.Far more troubling is the kind of marriage proposed by Citibank and the Travelers Group of insurance companies and stock brokerage. That would require changing the law that keeps banks - where individual deposits are insured up to $100,000 by the federal government - separate from other enterprises.
With remarkable chutzpah, these companies have embarked on a course that blithely assumes that change in law.
They think they can count on Republicans in Congress who say that the 1933 Glass-Steagall Act is a Depression-era relic. Fears that a market collapse could affect banks are old hat, they insist. Break down the fire wall and let the Federal Reserve keep a benign eye on everything financial; we don't even have to fear fear itself.
Not so fast. Suppose the Big Quake afflicts California. Or maybe a Category 5 hurricane, which comes every decade or so, rips along the expensive expanses of a place like Long Island. That would put a lot of pressure on even the most reinsured insurance company.
If you heard such news, and you could switch your money out of the bank affiliated with that insurer with a keyboard stroke, wouldn't you be inclined to play it safe? And wouldn't that Internetted panic cause a run on the superbank?
That's being alarmist, of course. Such disasters are just as unlikely as a market crash (which we all assure each other can never happen again). But before the cash cow of Chase Manhattan starts making cow-eyes at the thundering herd of bulls of Merrill Lynch, Congress had better take a close look at the downside of upsizing across the old boundaries.
1. No private enterprise should be allowed to think of itself as "too big to fail." Federal deposit insurance, protecting a bank's depositors, should not become a subsidy protecting the risks taken by non-banking affiliates. If a huge "group" runs into trouble, it should take the bank down with it; no taxpayer bailouts should allow executives or stockholders to relax.
2. What about privacy? Our bank already knows the details of our buying habits. Won't the affiliated stockbroker and insurance salesman have access to the superbank's records? Do we want a bank that handles our credit cards to be calling us at dinner time as a financial-service telemarketer?
3. Let's not be in such a big rush to knock down barriers. The government's biggest financial mistake of the past generation was to raise deposit insurance to $100,000 while allowing housing S&L's to plunge into commercial lending. That all but removed the element of risk from foolish or corrupt loans and helped bring on the S&L debacle. Good fences make good banks.
4. Beware the slippery slope to crony capitalism. Paul Volcker, former Fed chairman, is less troubled than I am about an amalgam of financial services, provided the Fed is the supervisor. "But there is an Anglo-Saxon tradition separating banking and commerce," he says. "I'd continue to draw the line between finance and business."
There's the rub. If commercial banks invade mutual funds, stock brokerage, investment banking, insurance sales and the like - or get invaded by them - that "finance" is likely to spill over into "commerce and industry." That's the seamlessly interconnected philosophy. And that's the path of Japanese "keiretsu," the cozy network of insider financial dealings that crushes competition and breeds inefficiency.
"Mere size" can be a virtue when it reduces prices. But the fewer the competitors, the more collusive the pricing.
Our financial institutions can go global without going gaga. I've never knocked greed, but this spread-eagled "universality" is getting out of hand. Let bankers be bankers.