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Megamergers Signal an End To Mom-and-Pop Bank Era

Some experts predict better service; consumers see higher service fees

BANKING in the US used to be almost entirely done face to face. Branch banks - often small, local institutions - welcomed personal visits from customers, freely gave advice on balancing checkbooks, and usually approved loans to familiar borrowers with little paperwork. Nowadays, such personal financial service seems as old fashioned as a drugstore soda fountain. Banking is more and more becoming an impersonal industry dominated by megacorporations and automatic tellers - as a flurry of bank mergers and acquisitions this week shows. Such combinations as the colossal $297 billion merger of Chase Manhattan Corp. with Chemical Banking Corp. may well be good business, say consumer advocates. But they worry about the impact on services that touch the life of almost every American. ''A merger may mean more efficiency for banks, but for their customers, it often means that their bank branches will close and they will have to learn complicated new rules and fees,'' says Linda Golodner, president of the National Consumers League. ''The big beneficiaries are consumers,'' counters James Chessen, chief economist of the American Bankers Association (ABA). ''Banking will offer better services because the new institution has to demonstrate that it can no longer be business as usual - it has to be better than usual.'' He cites Howard McMillan, chief executive officer of the Mississippi-based Deposit Guaranty National Bank, whose ''standard operating procedure when he takes over a bank in another region is to boost the loan volume there to convince borrowers that he is going to do something good for them.'' ''The bottom line, for any merged bank, is to maintain relationships,'' Mr. Chessen says. But the problem for banks is maintaining relationships in an era of financial parsimony. The current trend, at a time when government regulations pose major expenditures, is to cut costs in other areas. That often comes at the expense of the work force. The industry's declining payroll, numbering almost 1.5 million, will contract further as merging firms eliminate redundant workers, and they encourage consumers to bank by automation - either through computerized ATMs on street corners or by telephone. Banking by mail also eliminates more personal assistance. Not only has a human touch given way to technocracy, but deposit slips are one of the few services left that are free. Increasing numbers of banks are charging for account inquiries that are not answered by monthly statements. And there are the frequent changes in ATM fees, check charges, and penalties for failing to maintain minimum balances. Increasingly, big banks are drowning out competition, leaving one or two banks to serve a community, says Stephen Brobeck, head of the Consumer Federation of America. ''Big institutions tend to charge higher fees and loan rates, and they impose them on their new consumers,'' he says. Mr. Brobeck says research on bank mergers in the 1980s shows that ''they don't benefit shareholders as a whole.'' What he calls ''the merger splurge'' is due largely to the ''egos of CEOs and management involved, who see bigger as better, and a chance to boost their salaries.'' In the meantime, poor consumers are the hardest hit, contends Tip Phabmixay Ark, a lawyer who specializes in banking and low-income issues for the San Francisco-based Consumers Union. She says the big bank phenomenon has made financial services a socially stratified system because branch closures disproportionately hurt the people who live in what banks consider unprofitable neighborhoods. ''This is not a cash economy - people need financial services,'' Ms. Ark says. ''They have to convert their paychecks into cash and pay their bills by check or money order. But typically, large banks have few branches in low-income and minority neighborhoods. So, people turn to check-cashing outlets that charge 2 to 3 percent of the check amount.'' The nation's 10,000 commercial banks are slated for more consolidation. Ninety-five percent are now considered community banks - small institutions of $500 million and under. The balance is made up of some 250 mid-sized banks (capitalized between $500 million and $1 billion) and 400 large banks (with assets exceeding $1 billion). Regional and nationwide banking networks have spread fast. The ABA estimates 400 to 500 mergers a year have occurred over the last decade. It forecasts 600 for 1995. Big banks are primarily targeting mid-sized institutions, though analysts predict the smallest will eventually succumb.