Consolidation in the banking industry has given the United States a competitive edge in the global economy, according to a leading bank executive.

Anthony Terracciano, president of First Union, said "We have the opportunity now to be the strongest player in the group, where seven years ago we were perhaps number four. ... Our position has improved while the number of banks has gotten smaller. That is not a coincidence."

Speaking at a panel on The Future of Financial Services: Regulation and Market Forces held at the Alumni House during a day-long visit to UConn December 3, Terracciano said there has been enormous consolidation in the industry over the past seven years, largely as a result of stronger banks buying up other banks weakened by the recession and real estate problems.

First Union was formed by the 1995 merger of First Fidelity and First Union. In April, First Union bought Corestates, a merger that is the nation's largest to date in the bank industry.

Terracciano said consolidation is likely to remain the crucial issue for banking during the next five to 10 years and predicted that in an industry that began with 14,000 banks "we may wind up with 3,000 banks," including just a handful of large banks.

The banking industry has now embarked on a second stage of consolidation, he said: the creation of a financial services industry, in which insurance, investment banks, and mutual funds will join together.

Terracciano said banks go through cycles of struggle and prosperity - like Sisyphus in Albert Camus' novel, rolling a rock up a hill and then walking down. Although a few years ago the banks were worried about going under, now - because of their size, their advanced technology, and their management - they are well placed, he said. "If the banks can avoid repeating their mistakes, they can dominate the next stage of consolidation."

John Glascock, head of the finance department, said the consolidation of banking has parallels in other U.S. industries, such as accounting and the auto industry. He said consolidation of banking was necessary in order for American banks to compete in the global economy. "We need concentration in order for the banks here to have the same competitive power as they do in Germany, as they do in Japan."

Other speakers on the panel, which was moderated by President Philip E. Austin, addressed the role of government regulation in the consolidation of the banking industry.

Robert Gilmour, a professor of political science, said that for most of the nation's history banking has been a heavily regulated industry, yet there is currently a major deregulation in the industry. Although he does not foresee an imminent return to regulation, if there was a downturn in the economy, he said, that could change.

"Banks are clearly becoming bigger and big banks will fail big," he said. That could ultimately affect the economy itself, as well as the dollar as the basis of the international currency system. "We insure banks because we have to. Banks are too big to fail," Gilmour said.

Fred Carstensen, a professor of economics, said the emergence of international regulations is enabling U.S. firms to compete better.

Glascock ascribed the series of crises in banking this century to government regulation and shifts in policy. He said he knows of no banking collapse that was the fault of the banks.

Terracciano agreed that government policy has played a role in banking crises but said the banks are "not exactly blameless."

Lending money is a risky business, he said, yet "in the '80s, the average size of loan got bigger and bigger, and the average age of the lending officer got lower and lower. ... We ought to be smart enough not to make stupid loans."

The panel was co-sponsored by the Center for Economic Analysis and the Departments of Economics and Finance.

Elizabeth Omara-Otunnu