Who gains when big banks merge?

The huge wave of bank mergers in the United States makes many people uneasy.

When outside banks bought two of three banks in a Wisconsin town, bank regulators checked in on the third, still independent bank. They wanted to make sure it had the staff and ability to handle a flood of new business as customers fled the acquired banks.

Something similar often occurs when big banks merge or take over smaller banks.

In fact, independent bankers see mergers as a chance to grab new business.

Last week, the biggest banks in New England, Fleet Financial and BankBoston, announced a merger. Together they will be the nation's eighth largest bank, with $180 billion in assets.

The marriage is part of a huge consolidation in the banking industry. In 1992, there were 8,868 independent banks nationwide. There were only 7,095 at mid-1998, counts SNL Securities, a financial information firm in Charlottesville, Va.

Views differ as to whether this is good for most consumers.

"It is bad news," says famed consumer activist Ralph Nader. "Big banks charge more for services on average than small banks. And they are much more difficult to reach."

He recalls spending eight minutes trying to get through Fleet's centralized phone system to a branch manager.

Mr. Nader has a host of other charges against big banks.

He says they give relatively fewer loans to small business and red-line poor areas by closing branches in those districts. They have taken the lead in hiking automatic-teller-machine fees. They, he continues, "gouge" customers with fees, sometimes even charging for closing an account.

Finance professor Paul Nadler agrees in one area.

"A lot of big banks don't care about the small customer anymore," he says.

But it doesn't bother the Rutgers Graduate School of Management economist much. He figures consumers can just take their accounts to another bank where charges are lower.

"You have to make a little more effort, though," he says. If a customer just stays in place with the merged bank, he may be "killed" with big fees and higher interest rates.

Banking expert Banjon Thakor is more positive, seeing bank consolidation as "good."

"We shouldn't do anything to stem the tide," says the University of Michigan Business School finance professor. He wants the free market to reign.

In 1998, the nation saw the four largest bank and thrift mergers of all time. More than $1.2 trillion in assets were sold or merged, SNL reckons.

Eventually, the nation will end up with 20 or less huge banks and perhaps 7,000 smaller banks of all sorts, predicts Mr. Thakor. Regional banks will all get "gobbled up." And medium-range banks will be "targeted" for takeover.

The biggest banks will be financial supermarkets, offering not only banking, but insurance, mutual funds, and investment banking services. But Thakor is not convinced consumers put much value on such one-stop service.

So why do banks merge?

One reason is they can. For the first part of the century, bank branching and interstate banking were highly restricted. But by the 1980s, many of these restrictions were gone and bank mergers began to explode.

J. Alfred Broaddus, Jr., president of the Federal Reserve Bank of Richmond, says the "main driving force" behind the merger boom is new technology. The cost of data processing and communications has fallen dramatically. This makes feasible centralized management of a large number of customers.

According to economic studies, mergers of big banks haven't produced the greater efficiency bank executives promise.

But Mr. Broaddus suspects there may be some regardless.

One concern of merger critics is that bank mergers will reduce competition.

Broaddus says the opposite is true: competition grows, with the Fed limiting bank concentration in specific markets.