LOS ANGELES _ Last year, American banks boasted record profits
of almost $45 billion. Last week, a big Chicago bank said it must
charge customers a fee to use human tellers because it no longer
can afford to offer the service for free.
Sound contradictory? Welcome to banking in the 1990s.
Even as earnings reach new highs, the banking industry is in
the midst of a quiet but wrenching transformation that some
analysts liken to the declines of steel companies in the 1970s
and airlines in the 1980s. And no one is feeling the pain of the
change more acutely than bank customers.
At the heart of the evolution is a steady erosion of banks'
traditional business. Banks monopolized lending for decades by
taking in consumer deposits at one set of interest rates and
lending those funds to blue-chip companies at higher rates.
But consider this: Consumers today shop with AT T credit
cards, get car loans from General Motors and keep deposit
accounts at Merrill Lynch. Mutual funds are fast siphoning off
depositors and companies now issue stocks and bonds rather than
seek bank loans.
That encroachment has caused commercial banks' share of U.S.
financial assets to dwindle to 25 percent today from 37 percent
"The way banks function now, they are obsolete," said Edward
Furash, a Washington, D.C., bank consultant. "Banks are going
through a horrible crisis."
Added William Zuendt, president and chief operating officer of
Wells Fargo Co.: "The way banking has been practiced is already
The evolution of banking is hitting consumers the hardest as
banks seek to replace the income lost from the lending business.
Gone are the days when banks gave away free toasters for opening
checking accounts. Today, in fact, consumers are lucky to dodge
monthly charges on those accounts.
The plan by First Chicago, the nation's 10th-largest bank, to
charge for teller use garnered national headlines but it is
little more than the continuation of a trend that already is
entrenched in California. Some checking accounts at Bank of
America and Wells Fargo, the state's two largest banks, are
similar to First Chicago's. At Wells Fargo, for example,
customers with automated teller machine-only checking accounts
are charged $5 in any month they use a human teller.
"Banks have become obsessed with maximizing profits and have
found the easiest way to do that is to impose new and higher
fees," said Stephen Brobeck, executive director of the Consumer
Federation of America, an advocacy group in Washington, D.C.
Banking's problems have been masked in recent years by a
profitability surge. But the earnings are misleading because they
have come from temporary factors that already are receding,
analysts say. A good chunk of the earnings sprung from falling
interest rates, which created an unusually wide gap between the
low interest rates paid to depositors and the higher ones charged
on loans. Banks' securities trading businesses also have
contributed strongly to earnings.
The seeds of banking's current problems were laid more than a
decade ago when large blue-chip companies discovered it often was
easier and cheaper to raise capital by selling stocks and bonds
to investors than by getting bank loans. That not only deprived
banks of a reliable income source, but it forced them into
riskier lending. Those loans, extended for leveraged buyouts,
Third World development or commercial real estate speculation,
later collapsed and caused millions of dollars of write-offs and
a sizable number of bank failures in the late 1980s.
Banks have maintained a healthy middle-market lending presence
but increasingly those companies also are tapping the securities
Add to that the intrusion from non-bank financial companies _
such as brokerage houses, pension and mutual funds, insurers and
finance companies _ into the most profitable elements of banks'
traditional lending and deposit businesses. …