6. NEW MEGA-MERGED BANKING BEHEMOTHS = BIG RISK

Source: MULTINATIONAL MONITOR, Date: June 1996, Title: "The Making of the Banking Behemoths," Author: Jake Lewis

Nineteen ninety-five was a record year of bank mergers. Chase Manhattan and Chemical bank combined to create the nation's largest bank, with $300 billion in assets -- while on the West coast, the merger of First Interstate and Wells Fargo created a new giant with over $100 billion in assets. The massive consolidation of the nation's banking resources has resulted in 71.5 percent of U.S. banking assets being controlled by the 100 largest banking organizations, representing less than 1 percent of the total banks in the nation.

Under the Bank Merger and Bank Holdings Company Act, the Federal Reserve is required, before approving any application of a merger, to test how well the convenience and needs of the public are being met by the merger. Critics charge that the Federal Reserve Board is doing a disservice to the American public by not applying this "public convenience and needs" test to the wave of banking mergers -- as required by the Bank Merger and Bank Holding Company Acts. In light of this, analysts are concerned that the growing giants of the banking industry will "shift insurance risks to taxpayers, cost jobs, lead to increased rates for bank customer service, make it harder to get loans, and lessen community access to bank branches."

The trend toward bigger banks is creating a system whereby giant banking institutions are taking on "too big to fail" status. Indeed, a failure of any one of these new giants would have a devastating effect on the nation's financial health. And with the Federal Reserve capping the amount that financial institutions have to pay into the government's bank insurance fund at $25 billion, just 1.25 percent of deposits are now insured. Consequently, any bailout of one of these new megabanks would come directly from the pockets of taxpayers.

Studies have also found that banks in concentrated markets tend to charge higher rates for certain types of loans, and tend to offer lower interest rates on certain types of deposits than do banks in less concentrated markets. A 1995 study by the U.S. Public Interest Research Group and the Center for Study of Responsive Law showed that fees on checking and savings accounts increased at twice the rate of inflation from 1993 to 1995 as bank mergers moved forward.

Finally, the trend toward megabanks is closing out community access and making it harder to get loans. In 1995, the Justice Department ordered Wells Fargo to divest itself of 61 branches it acquired through its merger with First Interstate to preserve competition for certain types of lending. But the 61 branches that Wells Fargo divested itself of are being sold to Home Savings and Loan of Los Angeles, which recently decided not to continue its affordable housing lending. In a community where affordable housing is vital to its stability, the decision of Home Savings and Loan is very disturbing.

SSU Censored Researchers: Latrice Babers, Jeffrey Fillmore

COMMENTS: According to Jake Lewis, who wrote the article for the Multinational Monitor, "Most (media) coverage was at the time of the merger announcements. (There was) virtually no tracking of the mergers and their effect on communities after the initial announcement stories.

"Clearly, the massive consolidation of financial resources will have an impact on availability of credit and banking services and fees. The public sees only the flashy PR claims of merger partners -- -they need more information on what this means in the neighborhoods," says Lewis.

"Banks want their claims of benefits to be the guiding news concerning mergers-they don't want the public to be stirred by in-depth analysis of how the changes affect consumers, jobs, local economies, and banking prices.

"Bank consolidation and economic concentration is continuing ultimately changing the economic and political landscape of the nation. It ought to be covered now -- not as a historical tome to be put together after the fact -- and after it is too late to erect safeguards and limit the ill effects of economic concentration," argues Lewis.