CONFERENCE CALL: UP THE BANKS, OR AT LEAST THEIR CHARGES

Bank fees are bound to rise, speakers at a recent meeting of the District of Columbia Bar Association concurred — but there was disagreement about the cause.

The trend to so-called one-stop shopping at consolidated banks means “Consumers will be captive customers, you’ll pay higher fees and they’ll offer you the shaft,” said Ed Mierzwinski, consumer program director of the Washington-based U.S. Public Interest Research Group.

But economist Bruce Snapp, who also addressed the seminar sponsored by the association’s antitrust and financial markets sections, sees another factor driving fee hikes: increased competition.

Mr. Mierzwinski said a study his group conducted last year found that the United States is quickly moving to a two-tier banking system, where community banks provide more personal services and large banks serve people who want things like automatic teller machines, he said.

Banks increasingly will market unsuitable products to customers as well, he said, noting that the Securities and Exchange Commission recently fined NationsBank $7 million for marketing complicated derivatives, which the agency said were mischaracterized as safe investments, to senior citizens .

Mr. Snapp, a principal with Economists Inc., a Washington group of antitrust economists, noted that banks are responding to increased competition by trying out new investment products. “They’re making a lot of money now, but that could be short-lived. It’s hard to believe with international competition and deregulation . . . that there’s going to be much protection” for them.

“Competitors have reacted. If markets are as competitive as they can be, then you would expect any temporary higher profits to be competed away. Markets may be in transition. Some restraints are being removed allowing them (banks) to go into new areas, but other institutions are being allowed to eat into what used to be the exclusive realms of banks, like savings accounts.”

But Mr. Snapp says banks have market power over customers because “changing banks is traumatic. It’s not something you want to do every day… I think banks are willing to take advantage of their customers where they can.”

Martin Mayer, a fellow at the Brookings Institution in Washington and author of “The Bankers, The Next Generation,” said he was not overly concerned about bank mergers because banks’ relevance in the American economy has been steadily eroding in recent years.

“There was such a thing as a prime rate for a long time which was set by the banks. Today the banks are takers of interest rates; they are not setting interest rates. That’s an enormous change in the way we ought to look at the banks,” he said. “We have been moving at an accelerating pace from a bank-dominated sort of economy to a market-dominated economy.”

Changes in technology are leading to the homogenization of the banking industry, Mr. Mayer said. “The law is trying desperately to catch up to reality. It isn’t doing a very good job.”

The most important issue for banks, he said, is to ensure that they are not a drain on the government. That is a major problem Southeast Asian nations face as their banking systems come under extreme pressure.

Mr. Mayer offers the “narrow bank” as a solution: Federally insured deposits would be in banks that can invest only in short-term Treasuries and government-guaranteed securities.

Many people and companies now get loans and investments through financial companies other than banks. The one segment of the economy where banks are still crucial, both Mr. Mayer and Mr. Snapp agree, is in small and medium-sized businesses, which look to local banks for financing. Mr. Snapp noted that antitrust officials have taken care to ensure that markets for small-business loans remain competitive by forcing banks merging in the same geographic area to spin off formerly competing branches.