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WASHINGTON Consumers Union is leery about the massive consolidation now underway within the banking industry and has asked federal regulators to scrutinize these Wall Street deals closely.
"It is clear that the large banks which are making plans to consolidate are empire-building to maximize profits," said Frank Torres, legislative counsel at CU, publisher of Consumer Reports magazine. "Consumers are leery about the price-tag these Wall Street deals could impose. They won't welcome a new proliferation of fees, lost choice, lost privacy or the financial exposure that could come in the wake of these mergers.
"As banks are getting bigger, fees are multiplying, choices may be more limited, neighborhood branches are closing and new incentives exist for banks to pour over your financial records and prepare a sales pitch for products you may not need," Torres said. "The federal government's 'too big to fail' mentality also brings consumers severe financial exposure. If the business goes under, will a taxpayer-financed bailout follow?"
At issue are two proposed mergers to combine Nationsbank and Bank America and merge Banc One with First Chicago NBD Corp., both announced today. A deal to combine Citicorp and Travelers Insurance announced last week has also raised similar issues and appears to be driving a new wave of merger activity on Wall Street. The Citicorp-Travelers deal concerns consumers because it exploits a loophole in the law which permits the consolidation to take place even though current banking law does not allow it. All three mergers are subject to approval by stockholders and federal regulators before they go into effect.
"Without the questionable use of a loophole in the law, the Citicorp-Travelers deal that is propelling all this merger activity on Wall Street would be illegal on its face," said Mary Griffin, Insurance Counsel at CU. "The wink and nod the banking regulators appear to be giving the Citicorp/Travelers proposal makes these officials somewhat responsible for the massive industry consolidation now underway.
"It is imperative that these mergers get careful scrutiny and regulators should start by locking in the elaborate promises of cost savings we are hearing from the proponents of these Wall Street deals, " added Griffin, who noted that CU had written to the Federal Reserve and the Office of the Comptroller of the Currency to express concern about the merger activity.
