The sale of Wachovia's deposits and other assets to Citigroup on Monday leaves the nation with three superbanks, reshaping the U.S. banking landscape amid unprecedented financial upheaval.
For customers of those institutions – Bank of America, Citigroup and JPMorgan Chase – the consolidation may result in higher fees on everything from checking accounts to bounced checks and overdrafts, and lower interest-rate yields on deposit accounts, banking experts said.
Loan availability also remains in question in the near term, particularly after congressional defeat of the government's proposed financial bailout plan.
“The larger the bank is, theoretically the more power they have to set pricing and other policies,” said Nancy Atkinson, senior analyst at Aite Group, a financial services research firm. “I expect we'll start to see free checking accounts start to disappear, and rates on overdrafts could go up. Savings rates could drop.”
But the news isn't all bad. Atkinson and others are convinced that the about 8,500 remaining regional and community banks nationwide will play a role, providing consumers with more options.
“If you are a customer of the Big Three, you're probably going to see some increased fees because these banks have increased their market shares – dramatically in some instances,” said Tim Yeager, associate professor of finance at the University of Arkansas. “From the community bank point of view, I don't think you're going to see much change.”
More customer service glitches can be expected as Citigroup absorbs most of Wachovia and JPMorgan Chase consolidates the branch network of the nation's largest savings and loan, Washington Mutual, according to Michael Pagano, finance professor at the Villanova University School of Business. That could range from delays or inattentiveness to confusion over fees as two systems are integrated.
However, he was not overly concerned about the risk of much higher costs.
“If we had five banks in the whole country, I'd be worried about market power,” Pagano said. “But there are more than 8,000 banks. And even credit unions are a viable alternative, from large ones to small mom-and-pops.”
Essentially, Citigroup, Bank of America and JPMorgan, which acquired the investment bank Bear Stearns in March, now own about a third of the banking market, said Anant Sundaram, professor of finance at Dartmouth College.
“That is a level of concentration that we have not seen in the banking industry,” he said.
“If there is any further consolidation, it is not clear who the large buyers are going to be at this point, unless they are foreign,” Sundaram said. “It's not clear to me that the three large banks that are remaining have the ability to acquire dozens of regionals.”