Big banks face big issues

While being the biggest is often a virtue in business, being the biggest in banking today may seem like a liability.

In recent years, large U.S. banks suffered sizable losses in the housing market collapse and saw a variety of financial reforms cut deeply into their profits. And while these factors have affected all sizes of banks, because of their massive reach, large banks such as Wells Fargo and Bank of America have taken some of the biggest revenue hits.

To make matters worse, demand for loans remains dismal, in spite of record low mortgage rates. Other regulatory efforts, such as the Consumer Financial Protection Bureau's recent pledge to examine overdraft charges, also threaten to further restrict banks' profit-making capacities.

The scramble to recover

So where do big banks go from here? The immediate answer is that they will continue to try to recoup lost revenue through a variety of means. And unfortunately for customers, that means that new charges and fees on checking accounts are likely on the way -- if they're not already here.

Wells Fargo customers may want to take a closer look at their bank statements following news that the bank is eliminating free checking in six eastern states -- a plan that Wells Fargo has indicated it intends to roll out nationally in the months ahead.

Wells Fargo checking account customers will be able to avoid the monthly fee by using direct deposit -- a $500-a-month minimum is required -- or by maintaining a minimum balance of $1,500. But these new charges, along with other fees that Bank of America is now testing, are a strong signal that the way large banks handle checking accounts is changing significantly.

In addition to the fees, Reuters has reported that large banks are rolling out other changes intended to cut their costs and increase their profitability. JPMorgan Chase & Co. is testing self-service machines that will cash checks and perform other transactions previously handled by human tellers. The bank is also using machines that instantly produce debit and credit cards, saving the cost of mailing them.

Where do customers go from here?

Checking account customers, accustomed to years of free checking, still have the choice of moving their accounts to smaller community banks and credit unions, many of which still offer free checking accounts. Online banks, which don't face the cost of maintaining brick-and-mortar branches, also often forgo checking account fees, and some even still offer rewards checking.

According to the industry officials quoted by the Chicago Tribune, nearly one in five Americans bank with institutions without branches, but that number is expected to jump to one in two in the next decade. With their sprawling branch networks, large banks in particular will face challenges in transitioning from the branch-on-every-corner model of years past.

But if there's anything that big bank executives can take comfort in, it's that virtually all banks are facing the same challenges today in some form. This means that whoever adapts the best will likely take over the role of the biggest -- and all of the challenges that come with it.

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