Thursday, April 16, 1998

Bank mergers need more than cursory review

It's spring, a time of year when weddings proliferate, but who would have thought that mega-banks would be marching thunderously down the aisle? The bigger question is whether bliss will ensue from the major mergers recently announced -- bliss for the banks themselves, for their employees, for customers and for the economy.

The banks clearly see advantages for themselves, starting with stock prices that are already soaring. The banks may realize economies of scale, of course, enabling them to cut costs. They will be in a better position to acquire crucial new technologies, and most important perhaps, their increased size should enable them to compete more effectively in global markets, some made recently accessible by the end of the Cold War.

Some of the employees are out of luck. Mergers mean job cuts. Although the planned merger of NationsBank and BankAmerica would create an operation with $570 billion in assets and 4,800 branches in 24 states coast to coast, it would reportedly cause the elimination of as many as 8,000 positions.

Fees will remain

Customers can expect to see their fees stay steep with or without mergers, it has been noted. The old-fashioned way that banks made money, by lending it at far higher interest rates than they paid to depositors, has worked less well during a time of low interest rates generally. And so, banks have looked more to fees to secure their profits.

As a plus for customers, the mergers should facilitate one-stop shopping for such items as insurance and mutual funds in addition to ordinary banking services. That should be especially true of the first of these new mergers to be announced, the one between Citicorp and Travelers Group Inc.

On the other hand, some shiver at the thought of what it might be like, for example, when Banc One Corp. and First Chicago NBD Corp. join to become the banking colossus of the Midwest. Might not such a super-bank be in a position to treat customers cavalierly? Won't it be too big and therefore unwieldy and also impersonal?

Could benefit economy

On the whole, some experts have publicly guessed, the mergers could benefit the economy by making these financial institutions more productive, leading to more capital, to more jobs overall and to higher take-home pay on a national average. This could be as significant an issue as any for federal regulators to consider in deciding whether to concur in all the high hopes.

The main thing is that there should be a process of carefully assessing whether the mergers serve the public interest. Too much is at stake for the kind of pro-forma review and reflexive stamp of approval that many expect.