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There aren’t, nor have there ever been, “quick fixes” that can right this capsized ship. Simply changing bank rates, CD rates, or lowering interest rates seldom solves these issues quickly.

Why 2010 will generate changes in the banking industry

Unfortunately, collapsing real estate values are multi-headed financial monsters. The U.S. economy foundations have been, historically, manufacturing and real estate. In the past two decades, the manufacturing industry has dramatically declined in influence, as the number of goods produced outside the U.S. has measurably increased.

This has forced the real estate industry to become the lone foundation block of a strong (or weak) economy. The depth of the real estate “crash” of 2007 and 2008 fueled the disastrous recession. The inherent long-term nature of real property ownership and investment prohibits a fast turnaround in this market.

While many national mortgage companies have failed in recent years, banks that are also major real estate lenders suffered losses that have affected all other operations, too. Recent federal regulations restricting many former practices and terms for credit card issuers further complicate and deepen the challenge to generate new income sources.

Most banks are scrambling to simply find ways to replace lost income as a result of these new consumer-oriented regulations.

This “perfect storm” of restricting two primary income sources is forcing banks to contemplate changes to shore up their eroding revenue streams. Let’s examine some of the prospective banking industry changes that may emerge from this condition.

Potential banking industry changes

The predicted banking industry changes are not all negative. Some of the more important changes include the following items.

New restrictions on, or even elimination of totally free checking accounts.

After some years of aggressive marketing with direct mail, radio, TV, and Internet coverage, many banks are downplaying or eliminating totally free checking account products.

Combined with other reduced revenue streams, there are prospective new regulations regarding “bad boy fees,” e.g., overdraft charges, that may further restrict income. Look at money market accounts as potential alternatives to checking or savings accounts.

Adding “rewards” features to transaction accounts (checking, money market accounts, etc.).

The success of rewards credit cards is sparking interest in offering similar features to other deposit and transaction accounts. Individuals should examine these offers from their current institution and competing programs from other banks. Compare money market rates and “rewards” to find the best program for you.

Incentive programs targeted to stimulate deposits.

Low-cost deposits are the lifeblood of a bank’s ability to offer competitively priced loans. The pervading job losses and personal financial difficulties of recent years have depleted formerly stable savings account levels. Banks are analyzing new methods of attracting increased deposits.

One of the more intriguing possibilities is offering direct cash incentives to prospective depositors. For instance, as some banks eliminate totally free checking, they also offer cash incentives ($50 to $100) for those opening new accounts.

Encouragement to expand debit card holders, including incentives.

Expanding their debit card base is a critical component to the coming changes. Compare savings rates to learn if a debit card attached to a non-checking account is better for you. Advantages of debit cards to banks include:

• Increased fees, as depositors use “foreign” (other institutions’) ATMs, most of which charge fees, to access cash.
• Ease of marketing, as debit cards are perfect “green” alternatives to checks and other paper-based transaction methods.
• Reduced operating costs, as lower expenses, less administrative personnel time, and lower costs of Federal Reserve processing result.

Less aggressive credit card promotions.

As credit card issuers struggle to recoup some former revenue from card terms that are no longer permissible, aggressive promotions to prospective cardholders will decline. Compare bank rates for credit cards along with fees and charges to arrive at the true cost of your current or prospective card accounts.

New and (hopefully) acceptable fees for certain products and services.

Banks realize this is dangerous ground to traverse. Yet, they feel they must risk moving through this potential minefield. As mortgage loan-related income has all but disappeared and credit card fees are restricted by federal legislation, banks must institute some new acceptable fees for other products and services. When you compare savings accounts and compare CD rates, also examine any new fees and terms to learn the true savings rates you’ll earn.

Loosening some of the recent borrowing terms and restrictions.

Most of the home buying and owning universe is unfortunately aware of the disappearance of many mortgage products and the extraordinary restrictive qualification terms for borrowers. However, less well-known are the overall stricter credit score and income verification terms for other loans, including personal, auto, and home equity products. Some of the recession-generated restrictions may soon be loosened to stimulate borrowing.

Be sure to compare banking options

These are some of the more important expected changes in banking industry operations in the near future. Most banks will adopt at least a few of these policies to maintain stability and profitability. Perform a savings account comparison to take advantage of improved bank rates and terms.

Take advantage of the positive changes in this group and closely examine their new income ideas. Always compare your institution with its competition to learn of the best and most cost-effective offers.