A New Banking Order

A dramatic wave of proposed financial company mergers is sweeping the country--last week’s between Citicorp and Travelers Group Inc. would be the largest ever and this week’s between BankAmerica Corp. and NationsBank Corp. the second-largest. The consolidations should increase efficiencies in the U.S. financial services industry; a dozen banks in all of Europe far more economically produce the kinds of services that hundreds of major banks provide in America. From that perspective, the mergers are a sensible attempt to boost the bottom line by wringing out overlapping operations and gaining economies of scale.

However, consumers are right to question what the superbanks will mean for mundane services like personal checking accounts and home mortgage loans. And some employees of the merged entities are also right to fear for their jobs, because “efficiencies” almost always mean smaller work forces.

Consolidation in the industry began more than a decade ago, and its clip has picked up recently because banks are eager to broaden their bases so they can better weather losses in one region or industry.

Mergers are also seen as a way to meet the escalating costs of technology. Banks have spent fortunes reprogramming their computers to avoid the year-2000 conversion problem. They also need size and diversity to create sophisticated computer networks that combine lucrative data from other industries like insurance and brokerage companies.

By serving as one-stop shopping centers for checking, investment and insurance services, the new financial companies will be able to offer consumers services in a new way. But ordinary Americans could also get shortchanged.

It remains to be seen whether the new financial companies will pass their cost savings to consumers or use their industry dominance to hike fees. For instance, after their merger, NationsBank and BankAmerica would control roughly 15,000 automated teller machines nationwide; with a network that big, some financial analysts argue, they could raise ATM fees with impunity.

The remaining regional banks view the mergers with concern, and many will rush toward mergers themselves. But they could also see opportunity and reach out to the alienated customers the big banks leave behind. There will no doubt be plenty of them. Credit unions should be given bigger opportunities as well to fill in the gap.

Finally, the financial titans should create a new variation of the historical role that banks have played in giving something back to communities through donations to civic causes. As banks become super-regional and national, donations and volunteer hours should be allocated to all areas where the institution does business, halting the donation decline that has accompanied the merger wave. Community investment is a low-priced way for these huge institutions to keep a human face.