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BUSINESSWEEK ONLINE: DAILY BRIEFING | |||||||||||
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BW ONLINE DAILY BRIEFING |
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Goodbye Glass-Steagall, Hello Big Mergers -- and Big Fees? Banks, insurers, and brokers can now team up like crazy, but savvy consumers won't let the behemoths overcharge for their services You almost wouldn't know it for all the obsessive talk about the markets' short-term outlook recently, but finance history was made last week. After some two decades of debate, Congress and the Administration have reached agreement on repealing the outdated Depression-era Glass-Steagall laws that kept the banking, insurance, and securities businesses separate. True, each industry has been invading the others' turf for years, but in a haphazard, piecemeal fashion. Regulation will finally recognize that all three are essentially in the same business: managing society's savings. The implications of the new law are enormous. For instance, like other deregulated businesses, a merger frenzy of potentially unprecedented scale and scope is likely to be unleashed in the financial-services industry. Regulators rightly worry that these new behemoths will be considered too big to fail, encouraging their managements to throw the dice by lending recklessly throughout the global economy. These companies would profit handsomely if the gambles pay off, and taxpayers pick up the tab if they don't -- shades of the 1980s savings-and-loan crisis. But there's something else that matters deeply to consumers right now: fees. Will bank charges go higher as the financial-services industry rapidly consolidates? After all, fees have soared during the bank mergers of the 1990s, and mutual-fund companies have managed to hike theirs year after year during the Great American Bull Market. Or will fees fall, thanks to new efficiencies and heightened competition? LOW EVERYDAY PRICES. My guess is that most managements will try to raise fees -- but the marketplace won't let them. The trend is toward a world of low everyday prices. First of all, consumers are savvier than before about their finances and money choices. For another, there's the Internet, an irresistible technological force for driving prices down. Witness the impact online trading has had on the securities business. Commissions are plummeting as online trading goes mainstream. It won't be long before individual investors are paying pennies rather than dollars to trade stocks and bonds. What's more, mutual-fund companies are under growing competitive pressure to lower the cost of ownership or lose business to the online world. The Internet will make all banking fees transparent and price comparisons easy. It won't be long before Internet programs automatically review the fees you're paying on everything from your checking account to your investment portfolio, and offer you a menu of lower-cost alternatives with a comparable level of service. High-cost providers will lose business to cheaper rivals. When it comes to fees, at least, the gains from merger madness among banks, insurance companies, and Wall Street firms will benefit the consumer's bottom line. Good riddance, Glass-Steagall. Bring on the Net era of managing our money. Farrell is contributing economics editor for Business Week and co-host of Minnesota Public Radio's Sound Money, which can be heard this weekend in 171 markets nationwide
EDITED BY DOUGLAS HARBRECHT
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