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U.S. Not Likely to Slow Industry Consolidation

Experts say there is little evidence that financial services firms have become anti-competitive.


WASHINGTON — Federal authorities are unlikely to put the brakes on financial industry consolidation, which sped up Monday with the announcement of two huge bank mergers, including one that would create the second-biggest banking company in the nation.

BankAmerica Corp. and NationsBank Corp. said Monday that they plan to combine in a $62.5-billion stock swap. Meanwhile, Banc One Corp. said it would merge with First Chicago NBD Corp. in a deal valued at about $29 billion.

Although some banking fees--such as those for bounced checks, automated teller machine withdrawals and the like--have risen in recent years, and hundreds of bank branches have closed in the name of efficiency, experts say there is little evidence that the climate in the financial services industry has turned anti-competitive.

Experts say barriers to entry remain low, and new technology such as the Internet and online banking are making it easier for financial institutions to invade each other's territory. However, other experts note that the latest mergers would catapult the four banks into the top 10 among credit card issuers and would begin to test the limits of a federal law capping the share of deposits held by any one bank.

"The scale of these deals [is] off the charts," said James Furash, a principal at Furash & Co., a Washington banking consulting firm. "Unfortunately, for consumers I don't think you can anticipate significant lowering of [banking] prices . . . or significant antitrust scrutiny, since there is so little overlap in their branch operations."

"I don't see any regulatory problems," added Mark Schechter, a Washington antitrust lawyer. "On a nationwide basis, the banking industry--even after these deals--is not going to be highly concentrated."

The Comptroller of the Currency, the Federal Reserve and the Justice Department are all expected to review the two mergers, with an eye on what impact the deals are likely to have at the local level. The fundamental question that regulators are expected to pose is whether customers would continue to have access to competing bank branches in their neighborhoods.

On that score, NationsBank Corp. and BankAmerica Corp. are not expected to face significant problems, because the operations of the two banking giants are based on opposite coasts. San Francisco-based B of A dominates the West Coast, and Charlotte, N.C.-based NationsBank is a dominant player in the East.

Banc One Corp. and First Chicago NBD Corp., both based in the Midwest, are believed to have more branch overlap, particularly in the Indianapolis area.

But an aide to the House Banking Committee, which is trying to shepherd through legislation that would sweep away 50-year-old restrictions on the financial services industry, said both deals are the type many U.S. lawmakers are seeking in order to promote more efficiency in the banking industry.

"For decades, analysts have been contemplating the future direction of the financial services industry," House Banking Committee Chairman James A. Leach (R-Iowa) said Monday. "Recent announcements would indicate that tomorrow is here today."

For now, the Federal Reserve and Comptroller of the Currency will probably be pressured by consumer and community groups to focus on the local lending records of the institutions as well as the impact the merger would have on the safety and soundness of the banking system.

"We have serious concerns about big banks pricing their products more aggressively than smaller banks," said Stephen Brobeck, executive director of the Consumer Federation in Washington. "All four of these institutions charge relatively high fees."

Meanwhile, the Federal Reserve Board Monday gave conditional approval to the proposed $16.6-billion merger of First Union Corp. with CoreStates Financial Corp.

First Union must sell 23 branch bank offices to win final approval.

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