-----BEGIN PGP SIGNED MESSAGE----- The Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994, Electronic Banking and Digital Cash: A brief impact survey. +++ Last month the President signed into law the Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994. The act is the result of almost sixteen years of attempts to revise and ease long standing restrictions on commercial banking entities. The aspects of the bill which in my opinion hold the greatest implications for electronic banking, internet banking and digital cash are the lifting of basic geographic restrictions on commercial banking are outlined below. Commenting after the bill cleared the Senate, Secretary Bentsen indicated the following: ++ Begin excerpt This legislation represents a major step forward for the American banking system that has been sought by both parties for years. Efforts to ease interstate banking and branching restrictions were proposed by the last four administrations. I applaud the bipartisan effort to enact this important legislation. Interstate banking and branching will be beneficial to banks and their customers as well as the nation's economy as a whole. This bill will allow banks to reduce expenses by structuring themselves more efficiently. It will also promote the safety and soundness of the banking system through geographic diversification, which will enable banks to better withstand regional recessions and meet the needs of customers in times of stress. Customer convenience will be greatly enhanced by eliminating arbitrary restrictions on interstate deposit taking. Competition among banks will be encouraged by making it easier for them to enter markets that are not now full competitive. [...] The [Act]: * Permits a bank holding company to acquire a bank located in any state, beginning one year after enactment. * Allows a bank to merge with a bank in another state, beginning June 1, 1997, so long as neither state has taken legislative action to prohibit interstate mergers.... [...] * Allows foreign banks to establish branches, either de novo or by acquisition and merger, in any state outside the state in which the bank has its U.S. headquarters to the same extent that a domestic bank may establish such branches.... [...] ++ End of excerpt. Since the Glass-Stegall Act, which established strict separation of commercial and investment banking services, commercial banking has suffered in the marketplace due to investment services and investment banking competition. Investment banking and banking services could often offer services resembling those offered by traditional banking without enduring the strict geographical restrictions imposed on banks. At the same time, reduced deposit insurance regulation made the cost of these services lower. Even entities like insurance companies could offer loan services, and often offer them at better rates, that banks could no longer soundly approach. The most obvious impact of geographical restrictions to the average consumer was the restriction on traditional banks in regard to accepting out of state deposits. Most readers will recognize this manifest in the inability to deposit to an account from an out of state automatic teller. While withdrawals are possible through interstate networks like Cirrus, Most, NYCE and the Military Financial Network, deposits are restricted to in state entities only and as a result associated fees of any interstate transactions are a function of the number of financial institutions which the transaction must bridge, as the local banks are institutions unable to structure their own networks to avoid middleman cost. Similarly, wire transfers are presented with an identical cost bridge, as geographic restrictions have often required the adoption of several different networks between banks instead of a single network. Costs are predictably affected. With the introduction of the Interstate Banking Act banks will be free to expand their deposit taking functions across state lines (within the general restrictions of the Act). As a result Automatic Teller Machines may soon be able to provide many of the same services as a "Full Service Bank" provided merely that they have a customer service phone attached. The foreseeable impact on Digital Cash projects as well as online and offline cash and banking systems falls within a few brackets. 1> Positive effects for start up domestic efforts associated with geographic deregulation. 2> Positive effects for depositors in general. 3> Negative effects for start up overseas efforts. 4> Negative effects for overseas expansion efforts. 5> Negative effects for digital cash generally. 1> Domestic efforts: Because limitations on interstate banking are being lifted, those projects intending to start up a full or partial service financial institution with advanced electronic transaction services will obviously be more feasible on a nation wide scale. Prospects for nation wide, fully automated and cost effective electronic banking are greatly increased with the removal of the restrictions on geographic expansion. Look to see increased interest in long term banking customer relations as banks and depositors recognize that it may no longer be necessary to change institutions when changing domiciles. An immediate expansion of automatic teller networks and associated agreements with service providers is likely. 2> Depositors in general: Can expect to transact all types of basic banking functions nationally without the necessity of a local branch of their bank being accessible. As banks begin to realize the profits from interstate banking fees directly without dilution to the institution local to the transaction, expansion of electronic networks is a likely reaction. 3> Overseas efforts: Efforts to provide depositors with access to overseas institutions will be hampered in two ways: A> Investment prospects will decrease. Investors recognizing that overseas institutions which offer services in the United States have one less advantage over domestic banks will be less likely to participate in such a venture. B> Customers recognizing that overseas institutions offering services in the United States provide few, if any, needed services that local banks cannot also accommodate will reduce depositor interest in overseas electronic banking. (Note the cyclic effect of this on potential Investors in A) 4> Overseas expansion of existing institutions to the United States. Is less likely in so far as competition among domestic banks is stronger, and the potential market share is reduced. 5> Impact on digital cash. A> Because of the depositor interest in new local banking services, depositors are less likely to be interested in digital cash potential where a domestic checking account accomplishes the same basic goal. In so far as digital cash ventures depend on the general populations interest, as compared with the interest of the "enlightened population" (in my meaning, those who understand the privacy and liquidity advantages of digital cash over traditional banking services), the market share of digital cash ventures is reduced by the number of general population more comfortable with traditional banking services. (I feel this to be a significant number). B> Note the impact on potential investors in digital cash ventures of A. Not the end of digital cash by any means, but a blow for start up efforts. Anyone interested in a much more detailed analysis of the Act, I will provide one to the list if enough e-mail interest is shown. - -uni- (Dark) -----BEGIN PGP SIGNATURE----- Version: 2.6ui iQCVAgUBLpRCzBibHbaiMfO5AQE+6gP+MskAjaFyAeUKz2XjWBV7nSSttejTxkOL wkAW4jnrFBZJZCfsvRg+UGlnTRJzzdCHdpN0k/eKDnmTpO44p9kNt4MaLyh1nOG5 OpvfTcoaFevZLIqK1PUX2xRYVCHqKOHeSmzHv8j8BfQaXAUuLncDkiL2jPqwP8+n t4IfT8zwBsQ= =l3zV -----END PGP SIGNATURE----- Please report signature failures. -- 073BB885A786F666 nemo repente fuit turpissimus - potestas scientiae in usu est 6E6D4506F6EDBC17 quaere verum ad infinitum, loquitur sub rosa - wichtig!