What bankers want: leeway in bonds, money markets

The American Bankers Association, one of the nation's most potent lobbying organizations, has two main legislative goals this year in Congress: * Removing the prohibition against banks underwriting municipal bonds.

* Winning permission for banks to offer money market funds directly to their customers.

Both goals, according to Llewellyn Jenkins, president-elect of the ABA, appear to be attainable this legislative year. "Sen. Jake Garn [(R) of Utah, head of the Senate Banking committee] has said he will give favorable consideration to such legislation," Mr. Jenkins said in an interview.

(Despite Senator Garn's support, congressional observers say the legislation will need more champions if it is to pass, since the securities industry has a strong lobbying force too.)

The ABA's major legislative thrust, Mr. Jenkins said, will be to continue to work toward degregulation of the banking industry. "We think President Reagan is going in the right direction . . . in his deregulation moves," he commented. However, Mr. Jenkins says he believes it's still too early to gauge the impact of last year's deregulation legislation, the Depository Institutions Deregulation and Monetary Control Act of 1980. Among other things, the act gradually eliminates Regulation Q (which controls interest-rate ceilings) and permits NOW accounts on a national basis.

Other hot banking topics like interstate banking will probably remain in discussion stages at the ABA. Mr. Jenkins wryly termed the interstate banking issue "an open-minded discussion with some prejudice." He pointed out that out of the ABA's 13,000 membership banks, only 250 can be termed large banks. "If 12,750 banks vote against interstate banking, that will beat out the vote of 250 banks anytime."

Mr. Jenkins also indicated the question of whether or not the ABA would press for commercial banks to become involved with troubled thrift institutions was a case of "difficult arithmetic." For example, he reasoned, a commercial bank buying a troubled thrift would mainly inherit a loan portfolio that doesn't match its own. The commercial bank could put a lot of new capital into the thrift or buy the loan portfolio, but he points out, the commercial bank has shareholders to consider in any such transaction. "The only reason for a commercial bank to get involved with a troubled thrift is to get ready for interstate banking," he concluded.

Although some thrifts are clearly in trouble, Mr. Jenkins believes the industry as a whole is not in the process of drowning in red ink. "If you do a cash flow analysis of the thrifts," he says, "I think you will find that although their net worth is declining, there is no big danger." Still, he concedes, "If the worst thing -- the disintegration of the [thrift] industry -- were to happen, it would reflect badly on the whole financial services industry. We do have a concern and want to see the problem get worked out."

The recent merger of three beleaguered savings banks, the West Side Federal Savings & Loan Association in New York, the Washington Saving & Loan Association in Miami, and the Citizens Savings & Loan Association in San Francisco, he said, is a "big step" toward interstate banking.The three thrifts were brought together by the government, with National Steel Corporation -- the owner of Citizens -- the parent holding company.

Mr. Jenkins is uncertain whether the All-Savers Certificate will bail out the thrifts. "It will shuffle some money around," he remarked, "and may help some savings & loans get some money, but it's an interim measure. And, as far as the government is concerned, it will cut the tax take." The first $1,000 of interest earned on the All-Savers is tax free.

If Congress allows banks to set up their own money funds, Mr. Jenkins expects each bank will sprout its own fund. Smaller banks, without the computer or support facilities necessary to run such a fund, will have turn to banks with whom they maintain a correspondent relationship. Still other banks might form a pool, or regional, fund.

In spite of the fact the money market funds now control $150 billion, Mr. Jenkins doesn't believe it's too late for bankers to enter the money market business. "When bankers ask for your business," he explains, "they often can get it since they deal with the customer on a personal basis."

Mr. Jenkins, who is also vice-chairman of the board at Manufacturers Hanover Trust, will serve this year as president-elect of the ABA. In successive years, he will be president and chairman. The posts are full-time positions.