In less than 3 1/2 years, California will open its doors to interstate banking. It has been billed as a sort of banking industry "High Noon," with such Eastern gunslingers as Citicorp and Chase Manhattan taking aim at more than $450 billion in deposits held by their Golden State counterparts.
Who will be left standing after the dust of 1991 settles--and whether the shoot-out occurs at all--are the subjects of hot debate these days in banking circles.
A lot of the talk centers on who will lead the state's biggest banks into the expected showdown. At least two of California's four dominant banks, BankAmerica and First Interstate Bancorp, appear likely to have new chairmen in 1991. A change at the top is also possible at Wells Fargo & Co. Indeed, a new generation of banking leaders in California is waiting in the wings as their elders eye the sunset.
Although the answers to who will reign and which banks will remain after 1991 are years away, the state's four biggest banks are arming now for confrontations that could dramatically alter the financial landscape through mergers and acquisitions.
"If California borders are opened to interstate banking, as is supposed to happen, then it is an event which, if you are in our business, you cannot ignore," said Richard J. Flamson III, chairman and chief executive of Security Pacific Corp., parent of the state's second-largest bank. "To ignore the possibility that there will be significant consolidations would be a big mistake."
Joseph J. Pinola, chairman and chief executive of First Interstate, parent of the state's fourth-largest bank, concurred: "All of us are obviously thinking about 1991. But none of us is going to tell you our strategy for confronting it, because of the competition."
Despite Pinola's disclaimer, bank officials and industry analysts offer an outline of the different strategies being pursued by the state's four biggest banks to strengthen and reshape themselves for open competition with the outsiders.
They are strategies likely to change the structure of banking in the West well before 1991, as California's big banks fight for a greater share of the lucrative California market and buy up smaller institutions in neighboring states in order to make themselves less inviting targets for the big New York banks.
And they are strategies that offer a contradictory picture for consumers in the coming years. Consumer advocates expect the California big four to close even more branches to pay for their expansion into other states. At the same time, the banks will be more competitive on loan rates and other services in an attempt to expand their customer base in preparation for full interstate banking. It is all part of the dramatic transformation of banking in the United States.
For decades, a host of federal laws and regulations has restricted the products that banks can sell and where they can sell them. But in recent years, the Federal Reserve Board's permissive interpretations of what banks can do and sweeping technological changes have undermined those restrictions.
Simultaneously, calls for increased competition, with its potential benefits for consumers, prompted state legislatures to remove the historic barriers to interstate banking and open their borders to out-of-state banks. The result has been an increase in the number of bank mergers, but most of the deals so far have involved large outside banks buying up smaller institutions.
That merger pattern could change when California opens its doors. Because of the size and diversity of the state's economy, big out-of-state banks might be willing to spend $1 billion or more to take over any one of the four largest banks here.
May Rescind Law
The stage was set in 1986 when Gov. George Deukmejian signed into law legislation that opened California last month to banks in 11 Western and Southwestern states, as long as they gave California banks reciprocal rights. The measure also allows banks from any other state with reciprocal laws to move into the California market in 1991--and that created the potential showdown with the big New York banks.
Yet some industry experts think that the drama surrounding 1991 is overblown.
Joseph T. Arsenio, an analyst at the San Francisco investment firm of Birr Wilson, believes that sometime before 1991 the California Legislature may rescind the law allowing full interstate banking.
"If the politics of banking shift, it is quite possible that there never will be a move from East to West," he said. "All of the legislation put through so far is certainly capable of being reversed."
Arsenio envisions the possibility of a political backlash if smaller states that have already adopted interstate banking, such as Arizona, decide that they are not well served by institutions located two states or 2,000 miles away. That backlash could reach Washington or Sacramento, he said.