The high point of protection for the local banker was the New Deal. The Depression had devastated the country banks, but the big-city banks had survived. President Roosevelt was happy to go with the verdict of history—small-town bankers were overwhelmingly Republican, anyway—and to see the fittest expand to fill the void. Congress rebelled and demanded deposit insurance, which would bring the funds back to the country banks, and Congress won. The package of New Deal legislation in finance was designed to shackle the banks in the metropolitan centers, and not only protect the country banks but also promote a new kind of local banking enterprise, the federally chartered savings and loan association, to assure the supply of mortgages. Rigid walls were built between the national stock market and the banks, between commercial banks and savings institutions, between insurance companies and deposit takers. With the Federal Housing Authority guaranteeing the home mortgages that were always a significant part of the state-chartered, country-bank portfolio, the local bankers only had to sit tight in order to make money.

This is the system that died, dramatically and by historical standards very suddenly, during the past four years. By the end of this decade the United States will have many fewer independent banks than it had at the beginning, and the link between local enterprise and local banking will be much weaker. Nobody is fighting very hard any more to preserve the local bank. The small-town bankers themselves, scenting in the neighborhood potential purchasers come to pay them more than their businesses are worth, no longer marshal their forces in the state legislatures or Congress to keep the giant banks off their turf.

Though interstate banking is still formally prohibited, the fact is that New York’s Citibank has already begun operating in California (taking deposits as “Citicorp Savings”) and in Maryland (as “Choice,” a credit card that permits its holder to build a positive, interest-bearing balance in his account) and several years ago won a charter to start a bank in South Dakota. Early in 1984, under restrictions that prohibit the New Yorkers from offering their other banking “products” through these new possessions, the Federal Reserve Board okayed Citicorp’s acquisition of failing savings associations in Florida and Illinois. Bank of America has been permitted to buy the floundering Seafirst in Seattle; North Carolina National Bank, using a loophole in Florida’s trust company legislation, has been able to purchase banks throughout that state. Beyond that, Sears and stockbrokers led by Merrill Lynch have begun in virtually every state what are banking operations in all but legal semantics. Household Finance has already become Household Bank in California and might one day convert all its one thousand offices to banking operations, complete with checking accounts.

In part, the galloping nationalization of the banking business is the result of fecklessness in the management of the currency by a succession of administrations in Washington that did not understand the way people’s attitudes toward money and credit are warped by inflation. But the force driving America to a new pattern of financial institutions has been the change in communications and information-processing technology. Increasingly, both money and securities are no longer expressed by pieces of paper that must be sorted and stored in ways that leave a ledger and an audit trail. Instead they are electronic blips, no different in their nature from the other electronic blips that all companies with computers routinely generate and preserve in magnetic media.

Money is now moved, credit is extended, and financial purchases are consummated at the touch of a key, from almost any place on earth to almost any other place. Where once a local banker had preferential access to the funds of his neighbors, now a salesman for a money market fund can pick up a telephone and siphon away a bank’s deposit base simply by offering a higher rate of interest. Nationwide mortgage bankers, affiliated with stockbrokers or real estate brokers, can compete with local banks for that most local of loans, the home mortgage. Commerical credit companies backed by such giants as General Electric can offer local business owners the financing they require, quite possibly on terms more advantageous than those available at the local bank.

Ten years ago, when I was completing work on my book The Bankers, I kept running into counties and even states where the interest paid by the banks for funds and the interest paid by their debtors for loans were wildly different from those in the metropolitan centers. Wisconsin had a pattern of mortgage loans quite different from that in other states. Montana bankers would say that they couldn’t charge ranchers what the New York banks were charging retailers because they’d be run out of town on a rail. Returning to this business to write a sequel, I found national markets everywhere—Montana bankers who were shipping half the resources of the bank “upstream” to the money markets, where the rates were higher, and Wisconsin bankers who were offering only the mortgages the Washington-based national mortgage associations were willing to purchase from them.