Lean, Mean World of Mega-Banking

A largely unnoticed but rather startling news item a few weeks back disclosed that Wal-Mart Corporation, the nation's leading general-merchandise retailer, had decided to enter the banking industry by purchasing a savings-and-loan chain. And why not? Bank profits have been at record levels for most of the 1990s and are continuing to rise.

The top U.S. savings institutions, or "thrifts," recorded a median profit of $237 million last year. The country's Fortune 500 commercial banks -- those engaged in a broader range of business-oriented activities -- did even better, racking up a median 1998 profit of $433 million (or 13 percent) on total proceeds exceeding $300 billion. That placed them second in return on revenues only to America's pharmaceutical companies (19 percent), whose obscene level of aggrandizement has begun to attract the notice of government critics and an outraged public. Bankers, meanwhile, quietly increased their 1998 profits by about one-quarter over the previous year by secretively manipulating other peopleís money out of the glare of the limelight.

How have they done so well? Partly, it's by hooking consumers on credit cards to an unprecedented degree. The nation's bankers, who disseminate most plastic money in America, are now sending out four billion credit-card offers a year. Cards are available to literally anyone able to walk and chew gum simultaneously. Unemployed? On welfare? In school? In debt? No problem.

Once addicted to the narcotic of instant credit, the consumer is permanently in hock to his pusher, the bank, which collects annual fees, late-payment fees, over-the-limit fees, and a host of other "customer-service" levies. Late fees alone have nearly doubled in the last five years, even as grace periods have appreciable shortened. Moreover, banks are profiting handsomely from astounding interest charges on delinquent cardholders that range from 16 to 25 percent or more, a level permitted by the repeal in the early 1980s of most state usury laws. Bank lobbyists were busy.

General nuisance fees are another burgeoning source of bank income. Services once free or nominal (check cashing, foreign currency conversion, wire transfers, check replacement, money orders, cashier's checks) are now centers of profit. In addition, penalty fees for such heinous crimes as maintaining an inactive account, receiving a bounced check, or committing an overdraft have proliferated and increased. Your banker's operable motto has become: "No more Mister Nice Guy."

Automation and downsizing are a third reason bank profits are rising. Your friendly, familiar teller has probably disappeared from behind the cashier's window, or will do so shortly. Here's why: Factoring in labor costs, a transaction involving a teller costs the bank on average about a dollar, compared to seven cents on an automated teller machine (ATM) and one cent via the Internet, electronic innovations that save the bank money by having the customer do the work and pay for the privilege as well. To unsentimental bankers, the logic is obvious: Tellers have to go. Estimates are that half of all American banking jobs will be eliminated over the next ten years; thousands -- perhaps as many as 350,000 -- have already been phased out since 1995, along with innumerable branch banks. You say you'll miss the human contact and the community-based service? Too bad.

There is a silver lining beneath these figures -- sort of. Banks are expanding local offices that offer what is called "private banking." If you're in the affluent top 10 percent of depositors, your banker's hard eyes will soften; he'll provide you with whatever customized personal service you desire. You say you're struggling to make ends meet and can't qualify for a personal banker? Again, too bad. Unless your account is a current or potential source of significant bank income, the bank really doesn't want your business. And information technology -- isn't high-tech wonderful? -- allows the bank to identify and separate the desirable customers, and ease the less desirable ones out the door by means of a two-tier fee schedule. One result: Over one-quarter of Americans now maintain no savings account.

Banks have become such cold, calculating corporate citizens in part because the merger wave of the 1990s has reduced industry competition and limited consumer options. In 1986, there were 14,000 U.S. banks; by 1998, that number had dropped to 9,000. Most of the 5,000 missing banks did not fail; three-quarters of them were gobbled up by larger predators. Of the 40 biggest business consolidations consummated between January 1, 1997 and May 1, 1998, eight (including two of the three largest) involved banks.

The size of the financial monoliths produced by these mergers is the worrisome aspect. The NationsBank-BankAmerica deal of last year, for example, created the country's first coast-to-coast commercial mega-bank, an intimate neighborhood operation with assets of $618 billion. Such behemoths are simply too big to care and too big to fail. If they get into trouble through bad management or poor investments, the federal government will have to rescue them -- at taxpayer expense. The savings-and-loan bailout of the 1980s, now estimated to have cost $481 billion, suggests what that may mean.

But, say the bankers, look at all the conveniences our mergers provide. Customers can now access their accounts while traveling, for instance, by using branches and out-of-town ATMs. Perhaps they can, if they can find a branch bank that hasn't been closed in the name of consolidation. However, there are other costs involved. As suggested, fewer incorporated banks mean less competition, and in the long run less competition means lower savings interest, higher loan payments, expanded fees, and reduced banking hours. It also means fewer outlets, less person-to-person contact, and a relentless push for computerized banking.

The wave of the future can be seen in New England, where the industry landscape has changed radically for the worse in recent years, courtesy of Fleet Financial Group, Inc. Between 1982 and 1995, Fleet took over 50 other savings institutions and emerged as largest banking enterprise in the six-state area and the ninth largest nationally. It will shortly add New England's second-largest bank, the venerable BankBoston Corp., to its holdings, giving it something approaching a banking monopoly in the region. Along the way, Fleet has eliminated close to 15,000 jobs and closed several hundred branch banks.

Numerous public officials in New England, state attorneys-general among them, have voiced concern not only over the resultant loss of competition, but also over declining services to low-income neighborhoods that have a minimal priority to corporate giants like Fleet. Dismissing such criticism, the CEO of soon-to-be Fleet Boston Corp., Terrence Murray, responds that the increased size of emerging mega-banks produces economies of scale that allow them to -- and this is a direct quote -- "invest more in technology," in order to "develop superior products and services." Translation: Ready or not, Fleet intends to compel its customers to join the high-tech revolution and bank electronically.

Its aim, and that of the other mega-banks, is to create a financial world characterized by the "virtual" bank, where bricks and mortar, as well as people, can be dispensed with in the holy quest for profit maximization. You say you have no interest in cyber-banking and aren't even reconciled to ATMs? Too bad; you don't count. Your banking chain has its own agenda, and it's not customer friendly -- unless that customer fits a specific economic profile.

All is not lost, however. There are simple, direct steps citizens can take to combat the corporate mega-bankers. The first is to frequent smaller institutions that have resisted the merger wave. The second is to patronize your local credit union rather than a commercial or savings bank. On paper at least, credit unions still cater to the average saver, and their operating philosophy, while drifting in the direction of the big banks, remains less avaricious.

The third step is the old political-action standby, the boycott. Destroy those bank credit cards that come in the mail; use cash or checks instead. Refuse to bank by computer or ATM; show up in person. Don't play the mega-bankers' game.

Finally, as a last resort, mega-bank resisters can push for non-profit, state-owned institutions on the order of the populist Non-Partisan League agricultural banks of the early 20th century. This is not as hopeless and dated a concept as might be thought. As recently as 1982, Massachusetts gubernatorial candidate Thomas P. O'Neill III, son of the famous "Tip," advocated just such an idea. While his candidacy ultimately failed, his answer to monopolistic bank profiteering remains a viable progressive option.

Wayne O'Leary is a writer in Orono, Maine.

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