SHOOTOUT AT THE OLD BANK CORRAL

The cattle ranchers from the Treasury Department and the sheepherders from the Federal Reserve settled their pasture war over who gets to round up banks, moving financial deregulation legislation that much nearer the water hole.

Treasury Secretary Lawrence Summers and Fed Chairman Alan Greenspan are patting each other on the back at the Last Chance Saloon over their Solomonic decision to let banks expand into securities underwriting and the like through Treasury-regulated subsidiaries while insurance and real estate development come under affiliates of bank holding companies, which the Fed oversees.

What about merchant banking? That’s a tough one. So tough, in fact, that Larry and Al have decided to let somebody else worry about it. They agreed to wait five years – that’s 2004, the presidential election year after this one, in case you’re counting – and let their successors, if any, worry about what to do.

The White House had put all its prestige behind the Treasury in the battle, prompting Mr. Summers to warn “There are other crucial issues that remain to be resolved before financial modernization legislation can be passed that will be acceptable to the president.”

It’s not just a fight only a lawyer or somebody inside the Beltway could love.

The U.S. Public Interest Research Group, a consumer outfit, published a study showing that people who don’t keep a minimum balance in their checking accounts pay an average of $217.32 a year. That’s too much, the group believes, something a bus driver was saying about hidden bank fees just the other night, although an American Bankers Association spokesman called the figures “compeletely misleading.”

Ed Mierzwinski, an official of the consumer group, said “Congress will make the problem worse” if it OKs deregulation because it would only make “big banks bigger.”

Mr. Greenspan, in fact, has some of the same worries. He told the bankers association convention that “significant changes are in the pipeline” of regulation to deal with gargantuan merged banks.

Independence day

* Speaking of regulation, the Securities and Exchange Commission is seeking public comment on proposed rules that would mandate a majority of independent directors – nominated by independent directors – on the board of all but the smallest mutual funds. Now, you may recall, only 40% have to be independent and they can be nominated by fund management. Investment Company Institute president Matthew Fink says it’s a great idea.

Keep on smilin’

* Charles Schwab Corp., the KMart and Amazon.com of brokers, reported fewer trades from jittery stockholders in the third quarter than in the 1998 period, but profit was up 27% to $124.5 million. That met analysts’ expectations. No. 2 online broker E*Trade Group Inc. reported only a slight drop in trades, but stocked up on red ink after spending a bundle on advertising.

Merrill Lynch & Co. Inc., Paine Webber Group Inc. and Donaldson Lufkin & Jenrette Inc. all reported a big bulge in quarterly net profit. Bear Stearns Cos. Inc. doubled its profit from last year’s Antarctic levels but not its fun, as it missed forecasts by 13%.

It was another story for banks, which are expected to slip with trading revenue. First Union Corp. didn’t disappoint the experts: Its profits were off 21%, as expected, although (see above) fee income was up to 48% of total revenue for the first nine months. That more than made up for the $79 million in portfolio securities losses.

Some art

* Alan Blinder, the former Fed governor now back teaching economics at Princeton, told an audience there that indeed economic life does imitate art, or at least economic theory. “You would think that economists would have to adjust the models to fit reality,” he said.

Hah. Just look at socialism. All economic models now are based on capitalism, he said, and “There are now essentially no socialist countries left.” Take that, Mr. Marx.