And Bert Ely, a Virginia-based banking consultant, points to seven major tax and regulatory burdens that non-bank competitors either face minimally or not at all.
Some examples: deposit insurance premiums, excessive capital requirements, restrictions against selling various financial products and the costs of community-oriented programs such as the Community Reinvestment Act and Home Mortgage Disclosure Act.
To compensate for such tax and regulatory burdens, banks must generate an interest rate spread 0.84 percentage points higher than non-banks to make the same profit on assets, Mr. Ely estimates.
Help may be on the way.
The industry has launched an all-out drive for deregulation, and President Clinton has indicated he sympathizes with the cause. Rep. Joseph P. Kennedy II, D-Mass., who wrote the latest additions to the Home Mortgage Disclosure Act, is the new chairman of a House subcommittee on banking. He now says he wants to help get the banks "away from paperwork and into the business of making loans."
Banks are looking inward for salvation, too. NationsBank Corp., for example, plans to grow more profitable by growing bigger. The Charlotte, N.C., company's proposed acquisition of Baltimore's MNC Financial Inc. would make the nation's fourth-largest banking company the biggest in the Baltimore-Washington market.
NationsBank also is expanding vertically. The company is launching a joint venture with securities firm Dean Witter and has announced plans to buy the finance subsidiary of Chrysler Corp.
This drive for fee-based revenues is occurring in Baltimore, too. Provident Bank of Maryland created a unit to sell insurance annuities, and leases space in some branches to a company selling mutual funds. The Bank of Baltimore runs a discount brokerage. And Mercantile-Safe Deposit & Trust Co. has launched about a half dozen mutual funds for customers slightly less wealthy than the bank's trust department clients.
"We have to continue to do logical extensions of what we do now," says Douglas Dodge, president of Mercantile. In another move to fend off non-bank competitors, Mercantile has built an investment advisory service into a $100 million business in less than a decade.
Industry may shrink more
Despite the banking industry's recent record profits, competition will force banks to consolidate even more, many believe. Rockville banking consultant Arnold G. Danielson argues that the nation still has a tremendous surplus of banks -- too many competitors chasing too few customers. He says the industry could stand to lose 9,600 banks of the 14,000 that exist.
Aside from transferring payments between parties, the one major area likely to stay in the domain of banks is small business lending, because these loans can't be made uniform enough to securitize.
Huge banks, such as NationsBank, hope to prosper by mimicking the local flavor of small community banks. Mr. Danielson and Mr. Dodge doubt it can be done.
"How do you administer and monitor credit quality on 88 gazillion loans?" Mr. Dodge asks.
But even Mercantile is a $5 billion bank. Mr. Dodge may talk about serving small companies, but Carol Kleinman has a different view of small. She heads Owings Mills-based Maryland Commercial Loans, which makes loans -- secured by real estate -- to dry cleaners, sub shops and pharmacists.
Ms. Kleinman frets over the future for such Mom-and-Pop businesses. "These were people who went to the corner bank or savings and loan [20 years ago]. But the corner bank and the corner savings and loan don't exist anymore," she says, adding that loan companies such as Maryland Commercial can't pick up all the slack.
The consolidation that has cost almost 150,000 bankers their jobs since 1990 will leave many borrowers without a means to expand their companies, Ms. Kleinman fears.
"I think that the small businessperson is really the person who has been left out in the cold," she says.