In banking, is bigger always better?
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Kai Ryssdal: As the FDIC works its way toward boosting federal insurance coverage for private bank deposits, it’s worth taking a look for a second at those banks. So far, regulators clearly seem to think bigger is better. Yesterday, it was Citigroup swallowing up Wachovia. Last week, Washington Mutual’s deposits were bought by JPMorgan. Two weeks ago, the already enormous Bank of America became even bigger with its purchase of Merrill Lynch. The end result is a lot more of your money in a lot fewer hands.
From New York, Marketplace’s Jeremy Hobson reports on what that means for those banks and what it’s gonna mean for you.
Jeremy Hobson: All this bank consolidation may be scary, but banking analyst Bart Narter says it beats the alternative.
Bart Narter: A super bank is much better than a bank that’s in business and a bank that’s out of business. So it’s far better to have a JPMorgan Chase Wamu than it is to have JPMorgan Chase and WaMu close down.
In that case and the others the big plus for the buyers is a vast customer base and all their deposits, says independent banking analyst Nancy Bush.
Nancy Bush: Consumer deposits are the most dependable funding agent that a bank can have.
Consumers get access to more branches and ATMS, but Travis Plunkett of the Consumer Federation of America says consolidation means customers will also be earning lower interest rates on their savings, among other annoying side effects.
Travis Plunkett: They will pay more in the way of banking fees, they will pay more for certain products like credit cards and overall will not have the kind of alternatives that they have had in the past.
They might be happy to make those sacrifices in return for a feeling of security. In mid-town Manhattan, Jerry McVeigh has just finished an ATM transaction at Bank of America. He says, amidst all the turmoil in the banking system, he feels safe with one of the big guys.
Jerry McVeigh: You know it will go down only if the whole country will go down, because it basically represents the whole country.
McVeigh might be right. Now that his bank has gobbled up Merrill Lynch, just as Citigroup and JPMorgan are bigger today than they were last month, these behemoths may now be simply too big to fail.
In New York, I’m Jeremy Hobson for Marketplace.
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