1st Interstate Chief Urges Deregulation : Pinola Says Banks Need Broad Investment Power

A top Los Angeles banker said Thursday that he would be willing to accept a steep reduction in customer deposit insurance in return for legislation that allows commercial banks to expand their investment powers.

Joseph J. Pinola, chairman and chief executive of First Interstate Bancorp, told a small gathering of bankers, lawyers, brokerage officials and politicians that he would accept deposit insurance of $25,000 per account, down from the Federal Deposit Insurance Corp.’s current level of $100,000, if banks were allowed to expand into such areas as the sale of insurance and real estate.

“I would trade for that tomorrow,” Pinola said, suggesting that the improved profits accompanying such expansion would be worth the reduced insurance protection.

“If we don’t get help (from Congress), we’re in trouble” because of the increased competition that banks are getting from financial-services giants such as Sears, Roebuck & Co., Pinola argued.

Workshop on Banking

Pinola made his remarks at an informal workshop on banking deregulation troubles and hostile corporate takeovers that was part of a two-day conference in Los Angeles on public policy and economic growth sponsored by the Los Angeles Times, the New York Stock Exchange and the UCLA Graduate School of Management.

Rep. Timothy E. Wirth (D-Colo.) told the group that legislative solutions to banks’ problems are not possible today because the financial-services industry is so divided. “I think we should have a freeze on the system and wait until a consensus occurs,” the congressman said. “What else can you do?” Wirth is chairman of the House Energy and Commerce subcommittee on telecommunications, consumer protection and finance.

Pinola’s remarks also appeared to carry little weight with Sen. Alfonse D’Amato (R.-N.Y.), who appeared most agitated about the way the nation’s largest banks have overextended themselves on oversees loans. D’Amato is chairman of the securities subcommittee of the Banking, Housing and Urban Affairs Committee.

The give-and-take of the meeting was a microcosm of the overall confusion and disagreement over the way banking deregulation is proceeding. Simply put, some believe it has gone too far, while others believe it has not gone far enough.

Federal and state legislation has given banks and savings and loans some expanded investment powers. But it also has cut deeply into profits because it has forced banks to pay expensive market rates for their savings and checking accounts.

Wirth also argued that it is time for Congress to focus on the fundamental change in the structure of the stock market instead of worrying only about stamping out abusive defenses against takeovers. He was referring to the vast increase in stock ownership by pension funds and other major institutional investors.

Others, such as Harold Williams, former chairman of the Securities and Exchange Commission, suggested a moratorium on hostile takeovers while Congress considers long-term solutions.

Francis Wheat, a lawyer with Los Angeles-based Gibson, Dunn & Crutcher, spoke at length about the deterioration of accountability to shareholders that has resulted because corporations are trying to defend themselves against hostile takeovers. He pointed to pressure on the New York Stock Exchange to permit firms to issue multiple classes of common stock, some of which have more voting power than others.