The Process of Bank Hegemony

The theory of bank hegemony and finance capitalism offered here describes the structural bases of unification of the banking commu-

nity. Hegemony occurs because of the dominant actors' privileged access to the major institutions of society. Such access enables these actors to promote values that support and legitimate their position and empowers them to squelch views considered detrimental to their position (Gramsci 1971; Sallach 1974; Williams 1960).

I have broadened the term hegemony here to include a structural component for the analysis of capital flow relations (see Patterson 1975). Cohesion within the business community develops from structural relations that suppress or obliterate conflicts and points of cleavage. These relations include lending consortia, common pension and trust fund investment patterns, and interlocking directorates. Organized capital flow relations condition and suppress friction (particularly between banks) by fusing their specific interests in the short run (Mintz and Schwartz 1985). The state's interest in maintaining a stable economy (at least during the tenure of existing administrations) fuses its interests with those of the business community. There may in fact be a long-term basis for a community of interests in maintaining a stable market economy.

Structural financial domination does not imply control of individual nonfinancial corporations or the state by individual banks. Rather, as a group banks may dominate all firms in the corporate community and the state. The legal and financial inability of individual banks to provide the loans sought by corporations and governments, and the consequent formation of large lending consortia, produces this general dominance. In addition, the similarities of trust and pension fund portfolios further homogenize the banks' interests, minimizing competition among banks (Mintz and Schwartz 1978b, 4; see also Mintz and Schwartz 1985).

Although all financial institutions absorb and reallocate surplus finance capital in general, they do not compete for the sources of that capital. "Commercial banks and property insurance companies mainly accumulate the free money available in the course of reproduction and circulation of capital. Life insurance companies, savings banks, savings and loan associations, and investment companies accumulate chiefly personal savings" (Menshikov 1969, 145). There are several points of cleavage and competition within that community, particularly between large and small banks, regional and money center banks, and commercial banks and savings and loans. One recent indicator of this competition was the

flurry of takeovers of savings and loan associations by large commercial banks, made possible by banking deregulation. Furthermore, although the largest banks in New York may share the common interest of maintaining that city as the financial hub of the country, they are not necessarily united at all times on all issues. Several financial groups in New York have exhibited some competition between them, "sometimes sharp, sometimes muted" (Kotz 1978, 85). These include the Chase group (Chase Manhattan Bank, Chemical Bank, Metropolitan Life Insurance Co., and Equitable Life Assurance Society), the Morgan group (Morgan Guaranty Trust, Bankers Trust, Prudential Life Insurance Co., Morgan Stanley and Co., and Smith Barney and Co.), the Mellon group (Mellon National Bank and Trust and First Boston Corporation), and the Lehman-Goldman Sachs group.

But one must not overstate these indicators of competition within the banking community. Of particular importance here, in addition to the anticompetitive influence of lending consortia, is the process by which large commercial banks can discipline small regional savings and loan firms and investment banks during crises. "Structural hegemony" refers to all the processes that produce coalescence among banks and other financial institutions. I will develop this theme in detail in the case studies in Chapters 2–6.

I do not use the term hegemony to denote monolithic, absolute power. Indeed, as the case studies here will show, banks sometimes fail to attain their ultimate goals (for example, in Cleveland) or lose large sums of money (for example, in W. T. Grant's bankruptcy). Sometimes circumstances or the process of struggle may force banks to accept unwanted compromises (for example, in Chrysler's bailout process). In other instances banks face real threats to their investments, as in the recent informal evolution of a debtor's cartel in Latin America (Business Week, 28 Dec. 1987, 88–89). And there are times when the large banks break ranks and betray one another. (For example, when the Bank of Boston and Citibank performed write-downs of problematic loans to developing countries, they left the Bank of America overextended. The Bank of America faced the choice of either writing down its loans as well or taking the risk without the enhanced power or shared risk of a unified banking community.) But when the struggle is over, financial institutions tend to emerge with more of their goals met than any other participant, because they act collectively to

control capital flows and wield more of the resources needed by both corporations and the state.

Even when clear-cut crises are precipitated by managerial decisions or economic constraints rather than by the actions of financial institutions (as in the case of Penn Central Corporation), banks' capital flow decisions are likely to alter the timing of the crises.

By examining the process of crisis formation, we can follow the alteration of business and state trajectories and trace bank hegemony formation and the development and dispatch of bank power. To elucidate this process, we will examine specific cases of each of the theoretical types of crisis formation. These include crises leading to bankruptcy (W. T. Grant Company), crises averted (Chrysler Corporation and Mexico 1982), and crises caused by political struggles between banks and nonfinancials or the state (Leasco Corp. and Cleveland 1978). Because crises and bailouts precipitate congressional investigations, hearings, and other legal proceedings, publicly accessible records and documents (including transcripts of proceedings, supportive documents, testimony, and so on) reveal the process of crisis formation, the related processes of bank power and bank hegemony formation, and the relative weight of the various postulated sources of bank power. The notion of the social construction of corporate and state crisis is critical to uncovering these processes of bank empowerment.