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mercial banks to engage in a wide variety of financial serv-

ices and to permit other financial services firms to engage

in commercial banking.  The artificial walls separating

those activities should be eliminated.  Those changes are

necessary to provide greater convenience for the consumer as

well as to keep financial institutions in the United States

globally competitive.  As Table 1 shows, banks in the United

States have faced increasing competition from other finan-

cial institutions over time, and their market share has been

declining.  That share went from 62.9 percent of total as-

sets of financial institutions in 1900 to 55.9 percent in

1948 and to 25.4 percent in 1993.

Permitting commercial banking and investment banking

under one roof, however, does raise important questions

about potential conflicts of interest and about the stabili-

ty and soundness of the financial system.  Competitive mar-

ket forces and incentives can address those issues if the

institutions are sufficiently capitalized.  To survive in

the marketplace, a commercial bank must be able to develop a

reputation for fair and honest dealing with its customers;

otherwise, customers will turn elsewhere.  Pre-Glass-Stea-

gall evidence shows how banks successfully resolved the con-

flict-of-interest issue and provides insights into how mar-

ket forces would shape the involvement of commercial banks

in other financial activities.  Banks appear to have volun-

tarily developed effective "firewall" structures that pro-

vide lessons for the current debate about the appropriate

structure of activities in a financial services firm.

The recent mergers of such banking organizations as

Bank of America-NationsBank and Banc One-First Chicago are

part of a broader trend toward consolidation and rational-

ization of the structure of the U.S. banking system.  During

the past quarter century, states have been eliminating arti-

ficial barriers to the geographic expansion of banks.  That

regulatory reform culminated at the national level with the

Riegle-Neal Interstate Banking and Branching Efficiency Act

that went into effect in June 1997 and will now allow the

markets to create truly nationwide banks.  Those mergers are

helping to create efficient and convenient interstate bank-

ing networks that would have arisen 30 years ago if the

United States had not severely restricted bank branching.

Geographic and product-line diversification can provide

greater stability to the financial system and enhance its

efficiency and convenience for consumers.  Contrary to the

concerns of many consumer and community advocates, it is the

traditional U.S. system, fragmented both along product lines

and geographically, that is fundamentally anti-consumer.

The transformation of the banking industry--illustrated by