On the 10th floor of a downtown Baltimore office building, in a room bigger than a football field, about 300 college-educated men and women sit at clean gray cubicles under subdued lights, answering phones that ring only in their headsets.
On the line are callers from all parts of the country. They want to shift investments, balance checking accounts, place orders for deposits and discuss everything from German interest rates to tax-free Maryland bonds.
In this room are the bank tellers of the future -- but they don't work for a bank. They work for a mutual fund company, T. Rowe Price Associates Inc.
From checking accounts to mortgages, from credit cards to business financing, non-bank companies are whittling away -- sometimes hacking away -- at the market share of banks and thrifts. And because of a combination of technological advances and disparate tax and regulatory burdens, many companies can offer their wares at lower prices -- and earn higher profits.
Many banks have gone on the counter-offensive, snapping up smaller banks and selling mutual funds, for example. Still, some industry members believe that without fundamental changes in the tax and regulatory systems, commercial banks may one day become nothing more than an electronic conduit for money. In that scenario, banks as we know them will be obsolete.
Charles Vieth, head of retail marketing at T. Rowe Price, isn't the kind of guy who would phrase it this way, but he and his phone-wielding gang are involved in bank robbery, pure and simple.
"Right now I'd say the bulk of the [mutual fund] money is coming from banks," says Mr. Vieth, a tall, solid, banker-looking fellow. And then he smiles. "That's where the money is."
Maybe so, but there's a lot less of it than there used to be. Banks' and thrifts' share of financial industry assets (excluding buildings and machines) fell by almost half in the last 15 years, to 33 percent.
So who has all the money?
Some is flowing to securities firms that help giant companies issue debt directly to the capital markets, with little or no help from banks. In fact, banks' share of all commercial and industrial loans and "commercial paper" -- debt issued directly by companies -- fell to 54 percent last year from 72 percent in 1980, the Federal Reserve Board says.
And some of the money is going to finance companies such as Household Finance Corp. and Commercial Credit Co. Finance companies in 1991 increased business lending by nearly 6 percent, to snare one-third of the market for business loans, according to American Banker. Commercial banks, meanwhile, cut business lending by 4.7 percent -- and were only half as profitable as the finance companies.
"Outside of a useful day-to-day checking account, you can probably get anything else at another financial institution," says Jeffrey Tassey, senior vice president of government affairs at the American Financial Services Association, the trade group for non-bank finance companies.
Certainly consumers needn't apply to a bank for their Visa or MasterCard anymore. In 1986, non-bank-issued credit cards accounted for less than 5 percent of an $82 billion market. But led by issuers such as American Telephone & Telegraph Co. and General Motors Corp., their share grew to more than 25 percent of a nearly $200 billion market by last September, says Credit Card Management magazine.
Even home mortgages are being ceded. While the nation's 14,000 commercial banks still dominate home mortgage origination and servicing, the single biggest mortgage writers are non-bank companies, including Countrywide Credit Industries Inc. and GMAC Mortgage Corp.
Meanwhile, government-created agencies, known best by their nicknames -- Fannie Mae, Ginnie Mae and Freddie Mac -- handle a growing share of the funding and loan guarantees for mortgages. The debts are pooled and sold to investors, essentially as government-backed securities, in a process known asset securitization.
The birth of mortgage-backed securities in the 1970s gave rise to the concept, the technology and the investor sophistication needed for asset securitization. It since has spread to all sorts of consumer debt, including automobile and credit card loans.
With asset securitization, non-bank financial companies can provide financing without many of the costs of being a bank, says Paul Jenison, who helped pioneer consumer asset securitization at Maryland National Bank a decade ago.
"You don't need deposits, you don't need a branch system, you don't need a bank charter to do it," says Mr. Jenison, a director with Prudential Securities Inc. in New York.
Unequal taxes, regulations
New technologies and the lack of a branch system help explain why non-bank companies can compete against banks. There's a more fundamental reason: unequal taxes and regulations.
Small community banks pay about $3.2 billion a year, or 24 percent of pre-tax earnings, to comply with 13 major federal regulations, says the Independent Bankers Association of America.