Don't Fence In Credit Cards, Free The Banks

With 293 million credit cards in circulation, Americans charged $366 billion worth of goods and services on plastic last year. Numbers like that have spelled big profits in recent years for U. S. banks, almost the sole issuers of Visa and MasterCard, the biggest brands going. Despite tough economic times, bank card divisions continue to mint money, though the rest of their institutions may be bedeviled by bad loans. Small wonder that bankers are howling over the invasion of the bank card business by nonbank giants, such as AT&T.

It won't do to dismiss all of the banks' complaints. After all, banks built the Visa and MasterCard franchises from scratch and invested millions in establishing the brand names. What's more, the clash over credit cards reflects a broader trend. Federal and state laws severely restrict the kinds of businesses banks can enter and forbid them to open branches across state lines. No other industry is circumscribed by so many regulatory controls. Commercial companies, with far fewer restrictions, are carving off a growing share of the traditional banking business. Already, the financial arms of companies such as General Electric Co. and Ford Motor Co. make as many loans as money-center banks.

Perhaps the current battle over credit cards shouldn't center on keeping nonbanks out of banking at all. Instead, we should be looking at prudently expanding (remembering the S&Ls) the competitive horizons of the banking industry. For years, bankers have pleaded for permission to expand their inventory of financial products into mutual funds and life insurance, for example. The Administration is correct to urge lawmakers to allow banks more freedom to get into other lines of business. Then, they wouldn't be so dependent on profits from credit cards as a last resort.

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