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The New Face of Retail Banking

As new financial reform laws set in, consumer-heavy banks will look to boost fees while cutting free services.



) -- It's no secret that banks are in a tough spot these days given new regulations restricting the way they once did business in their retail banking operations.

Bank stock investors know that profits will be stymied going forward as the industry adjusts to the new landscape. New restrictions from the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 (credit card fees), changes to

Federal Reserve Board

Regulation E (overdraft fees) and other financial reform measures have many scratching their heads trying to figure out how the banks will make up for lost revenue.

It seems obvious that if banks can't make money in the traditional retail way, consumer-heavy banks like

Bank of America

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Wells Fargo

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will look for other places to boost fees and raise pricing. At the same time, high-yield checking and savings accounts will become a thing of the past.

Mickey Cargile, founder and managing partner of WNB Private Client Services in Midland, Texas notes that checking accounts could morph into "build-you-own" accounts, where certain basic services are free but any additional services will be charged. "It may even get to the point where you have to pay for each check you write," he says. "I think that free checking will go away completely."

Wells Fargo, for example, introduced a new checking account last month in which customers will be charged $5 monthly, unless certain qualifications are met for the fee to be waived, according to


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Higher fees on placed on debit cards and ATM cards are also likely, Cargile says.

But perhaps it is investor expectations that need to be downplayed rather than placing all of the accountability on the banks themselves, some argue.

"I'm not sure where we all came up with the concept that banking should be free," Cargile says. "In a society when we get a service, we should pay for it.

But then it becomes a question of how much do you pay? There is some combination of service, convenience and cost that makes us decide where we want to bank."

Cassandra Toroian, president and chief investment officer of Bell Rock Capital, emphasized the necessity for banks to boost their lending - even in the anemic economic recovery.

"Banking at its core is meant to be a business based on spread revenues." Toroian writes in an e-mail. "All this noise on new rules from the Dodd-Frank bill - let's face it - some banks got into things that took them out of their core business."

Still not all seems to be lost in the retail banking industry. The changes could present opportunity for community banks to be more competitive and grab customers, observers say.

Some banks including

Fifth Third

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SunTrust Banks

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Whitney Bank


said during second quarter earnings calls last month that the percentage of customers choosing to sign up for overdraft coverage was higher than the banks' originally expected.

Checking accounts

became a hot button issue this year as new rules required customers to inform banks how they want overdrafts handled.

While banks do not typically break out just how much revenue they receive just from overdraft fees, the fee was typically seen as a surefire way to boost revenue since most banks provided the service automatically. Banks with large

deposit service charges

(which includes fees made from overdraft offerings) as a percentage of revenue include

TCF Financial



International Bancshares

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of Laredo, Texas and

Regions Financial

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, according to Federal Reserve data compiled by

SNL Financial


"The new reforms make consumer banking more transparent, but I do believe it's going to be more expensive as well," says WNB's Cargile. "As consumers we'll know more about what we will pay, but we will pay more."

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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