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GINNY’S COPYING SERVICE Offering Professional Word Processing Services as an Economical Alternative to In-House Production: 1524 E. Anderson Lane, Austin bonds stocks insurance mutual funds optional retirement program ANDERSON & COMPANY COFFEE TEA SPICES TWO JEFFERSON SQUARE AUSTIN, TEXAS 78731 512 453-1533 Send me your list. Name Street City Zip `The nature of power’ By Bernard Rapoport Waco Most journalists who write critically of banks have had little experience in business and don’t appreciate the intelligence, commitment and plain old hard work that go into the building of an enterprise. The role played by the bank whose management is actively concerned with the welfare and growth of its community cannot be overemphasized. For the development of my own company, local banks have been essential. Without the understanding, advice andin the early years the willingness of bankers to stick their necks out for me, I would not have succeeded. So, my criticism is not of banks per se, but of the rise of monopolistic and unrestrained power among financial institutions. Had my particular case come before the loan committee of a holding company, I am not certain I would have been able to do what I have done. Holding companies make loans that guarantee big compensating balances and involve little fuss. These institutions prefer to make large, single loans rather than the series of smaller loans men and women in small businesses need and would probably get if they were dealing with locally owned banks. The most significant structural defect of a holding company is its tendency to divorce authority and responsibility. A loan officer who reports to a holding company has responsibility, but little au thority. When an important decision is to be made, the staff of the holding company makes it. By definition, such people are bureaucrats and must conform to policies that may or may not meet local needs or address the merits of specific loan applications. To serve a community well, a bank must be innovative; bureaucracies seldom are. Comment In Texas, holding companies have more than 50 percent of all bank deposits in the state, but the figure only begins to suggest their degree of control. The bank that is not a part of a holding company has less of a lending capacity; if one of its customers needs a loan larger than the local bank’s ability to lend, the bank must negotiate with a banking conglomerate. In Texas, such situations give holding companies much more power than their 50 percent share of deposits warrents, since they can exercise their control of that money to influence the investment policies of other banks. Texans are proud of their tradition of independence and should understand that an increase in any group’s power comes at the expense of individuals. We need more banks that are responsive to community needs, and not a further concentration of power in the hands of a few Dallas and Houston bankers. A bank’s nibney comes primarily from the deposits of local citizens. My intuition tells me that a careful review would reveal that of the loans a bank charges off as losses, a substantial percentage are made outside its home community. Federal and state regulatory authorities should require any bank, whether or not a member of a holding company, to make most of its loans to local people, those who made the money available in the first place. Liberalized chartering of new banks, where new banks can be justified, might improve things. By liberalizing, I do not mean diluting regulation or easing the requirements for those who apply for bank charters. 1 just want to lessen the dangers of monopoly finance in communities with too few banks, too often run by the same owners. Some may say an increase in the number of banks will increase the opportunity for corruption, but historically it has been easier to ferret out corruption than contain power. The free play of an open, competitive market as described in Adam Smith’s The Wealth of Nations does not exist now, if indeed it ever did. What we see instead is a decline in the number of suppliers, and any such decline is an absolute evil for the consumer. Nowhere is this more evident than in banking, with the rise of the bankholding company. The concentration of money is the concentration of power. The framers of our Constitution perceived in their wisdom that the nature of power is to grow and extend. It is this extension and uncontrolled growth that we must guard against. Bernard Rapoport is president of American Income Life Insurance Co. of Waco. Bob and Sara Roebuck Anchor National Financial Services