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banks will survive by providing a level of personalized and

individualized service that super-regional and national

banks do not.  Consumers will benefit from the battle of the

titans.

Effects on Fees

The impact of bank consolidation on prices that custom-

ers will pay has received much attention.  Consumer and com-

munity advocates have been concerned that larger banks

charge higher fees.  The Federal Reserve conducts an annual

survey of 1,000 banks around the country to determine what

fees they charge and reports the results to Congress.26

Consumer advocates have interpreted tables in the report as

suggesting that larger institutions may appear to charge

higher fees for some services than do smaller institutions.

That conclusion, however, is not justified by the data.

The key reason is that larger banks tend to operate in met-

ropolitan areas and smaller banks tend to operate in rural

areas.  The costs of most goods and services are higher in

cities than in the countryside.  If one adjusts for whether

the bank is located in a Standard Metropolitan Statistical

Area or not, then the difference between the fees charged by

large and small banks disappears.27  In other words, both

large and small banks in metropolitan areas tend to charge

higher fees than large and small banks in rural areas.

Since large banks are more likely to be located in cities

than are small banks, the fee difference appears at first

glance to be due to bank size; however, the difference is

actually due to location.  If some multistate banks should

decide to charge higher fees than are typical in the local

markets, those institutions would be leaving open a market

niche that could then be filled by smaller local institu-

tions.

The types of mergers we are discussing also are likely

to result in lower actual fees being incurred by customers.

As is true in many lines of business, banks often give their

own customers discounts that they do not offer to noncus-

tomers.  One example is automatic teller machine (ATM) fees,

which are often lower or zero for consumers who use their

own bank's machines, whereas the bank will charge noncus-

tomers a higher fee for using the bank's ATM.  The megamerg-

ers are creating multistate networks of ATM machines owned

by the same bank.  A customer traveling to different cities

thus can avoid paying such fees and receive the discount

regardless of where she is.  This provides an important con-

venience to business travelers and to vacation travelers,