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How well are Utah's bankers and their government regulators doing in making sure that the state's chartered financial institutions remain safe and sound? Quite well, indeed, G. Edward Leary, state commissioner of financial institutions, told members of the Utah Bankers Association here Monday at the opening session of the trade group's 86th annual convention.

Leary said the state's banks have never been stronger or more resilient, thanks in large measure to a strong local economy that tends to forgive any mistakes by fueling positive bank earnings and boosting capitalization.But business is cyclical, Leary reminded the 350 members and spouses gathered here for the four-day conference, and he warned them to beware of complacency.

"The banking business in Utah will slow sometime, I hope far in the future," he said. "But my advice is to prepare yourselves for the inevitable downturn in the economic cycle, not with a sense of foreboding, but by doing the prudent things that will prepare your bank for the rising interest rate environment. . ."

A 200-page update and correction of the Utah Financial Institutions Act that was passed by the Legislature became effective June 1, changes in the law that Leary said will benefit all of the state's banks. But even more improvements are needed, he said, just to keep the local industry current, let alone on the forefront, of the rapidly changing financial services industry.

One trend that has him worried is the move toward centralization of bank supervision. Yes, he agreed, the move toward centralization has economies of scale to recommend them, but there are also shortcomings that are not being addressed.

Chief among these, said Leary, is that centralization of supervision results in concentration of authority, decision making and financial power.

Leary said the move to centralization of supervision also is creating a "stampede" to consolidate banking into larger and larger banks without realizing that the products and programs must be administered by larger and larger bureaucracies.

"And the lesson of history is that bureaucracies have an innate inflexibility in dealing with differences from the norm."

Leary said the United States has historically feared the concentration of financial power and the nation's traditionally large number of small banks has been a key factor in keeping the power broad-based while also keeping government close to the people - the Jeffersonian concept of Federalism.

But today, he said, many leaders at the state level, including, he noted, Gov. Mike Leavitt, have expressed concern for the growth and concentration of power at the federal level.

"The states, while intended to be equal partners in our governmental system, have over a period of many years, been relegated to subordinate status."

The result, Leary said, has threatened the nation's dual state/ federal system of bank regulation that he said has worked so well for so long.

The states, he said, have ended up playing an "M and M" role - mediating and moderating the "excessive swings" of federal regulators. But the public perceives the role of bankers and regulators as an adversarial relationship, full of animosity and distrust.

Leary said he hopes that doesn't hold true in the relationship between his office and the state's banks but noted that his examiners recently came across a "posted statement" that offered this view of the bankers vs. regulators debate: "Arguing with an examiner is like wrestling with a pig in the mud. After awhile, you realize the pig enjoys it."

As a former examiner, Leary assured the bankers he does not enjoy mud wrestling. In any case, he noted, the perception of animosity and distrust is even more damaging in that it deflects attention away from a more crucial issue: the increasing federal emphasis on regulation as opposed to supervision of banks.

Leary stressed that he was not implying that big banks are bad because they are centralized and small banks are good because they are decentralized. "To me, the greater challenge is placed on large banks to retain a personal relationship with their customers, to provide the customized, personal service competition dictates."

Judging from the calls he receives from the public, Leary said he is convinced that people don't move their accounts out of a bank because they can get a better interest rate on their savings somewhere else - the popular view of why customers change financial institutions. Rather, he has found, they do it because they are unhappy with the service they have received - or not received - at their bank.

Bankers, he said, should ask themselves if being unable to provide for the specific banking needs for a particular customer is worth the efficiencies gained in centralization.

"The challenge facing large banks is to have the close relationship with their customers that community banks enjoy by their structure," he said.