Financial Update (July-September 1996)
The Federal Advisory Council and
the changing face of banking
Charles Rice is chairman and chief executive officer of Barnett Banks Inc. of Jacksonville, Florida. He is also the Federal Advisory Council (FAC) representative for the Federal Reserve Bank of Atlanta. In an interview with the editor, Mr. Rice offered his views on the FAC and the banking industry.
Describe the FAC's role in policy-making.
The FAC was created in the original Federal Reserve Act as a vehicle for communication between industry and the Fed's Board of Governors. The agenda
items are submitted by both industry and the governors. In terms of decisions, the FAC spends the day prior to meeting with the governors coming to a consensus on the agenda issues. However, there is sometimes dissenting opinion that may also be communicated to the governors.
Chairman and CEO of Barnett Banks Inc., Jacksonville, FL
What value does the FAC bring to policy decisions?
The primary value is that the governors receive direct input for important topics. The input comes directly from industry, not just Fed people. And the topics themselves touch on a variety of issues including such areas as economics, regulation, and trends.
How do you view your role as a member of the FAC?
I try to represent the interests of all banks—large, small, independent—in the Sixth Federal Reserve District. Even though the topics may be broad, it is important to consider the banks in the district in terms of policy discussions.
Is the FAC a useful representative of the banking industry?
It is very useful because of its input to the Board of Governors. And the governors are intensely interested in this input. They are so interested that usually all are present at the quarterly meetings. If one of them is going to be absent, you are made aware of the fact and told why. In my three years' experience I can't remember an occasion when the chairman has not been present. The governors take input very seriously, not flippantly.
What do you like best about your role on the FAC?
The best thing is the interface with what some people call the second most powerful person in the world and his Board of Governors. The other thing is the chairman's intense interest in what any FAC member has to say.
What is the most significant change taking place in banking?
The most significant change is the shift to banks now offering products like annuities, insurance, and mutual funds. Simply buying or merging doesn't meet customer needs or revenue opportunities. Customers can now get these types of services from nonbank firms. Credit cards are an example. So if banks don't offer these products they will lose customers for traditional banking services.
In your opinion, what is next in terms of banking reform?
Well, it's unclear. What I see as necessary is for Congress to stay out of regulating the market. Leave the regulation to the courts, the Fed, and the Comptroller of the Currency. These entities will allow banks to be competitive and will help foster deregulation in the industry. It is quite necessary not to let lawmakers "help" too much.
Is concentration hurting the banking industry?
No. I believe we are over-banked. There are still over 10,000 banks in operation in the United States. It is the mid-sized banks trying to provide all things to all people that need further consolidation. By contrast, the community bank is still viable because of the type of service it can offer. In addition, there are dramatic changes going on involving technology. The product lines today are much broader than in the past. And technology is driving prices down so that banks can offer services more economically via PCs and ATMs. In some cases, like supermarket banks, the delivery system is lower cost than the bank's own branch structure.
How could the Fed better serve the banking industry?
The most effective way would be to adopt some of the recommendations of the Bank Administration Institute (BAI), particularly in terms of rewarding better-run banks with fewer restrictions. Presently there is a process that cannot be avoided, no matter how well managed the bank may be. It is still too much a case of "one size fits all."
As a banker, what products would you like to offer but cannot?
I would like to see more insurance and annuity products offered, but without the ongoing regulatory and congressional battles. The Leach Lite Bill is an example of what I'd like to see avoided. This type of legislation would give states too many regulatory powers, in effect giving 50 states 50 ways to regulate the industry. This hampers development.
Finally, what do you like best about being a banker?
I like being in the industry now and seeing the evolution—if not revolution—that is taking place. Indeed, perhaps it's probably not an exaggeration to say that there have been more changes in the previous two years than in the previous two decades. I'm also very interested in how banks are actually becoming part of the financial services industry, as opposed to functioning as separate creatures.