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Bank outlook 2012

December 19, 2011

| MoneyRates.com Senior Financial Analyst, CFA

The banking industry endured yet another tumultuous year in 2011. Global finance remained fraught with danger. Regulations and market conditions squeezed profits. Customers pushed back on attempts to introduce new fees. And banks weren't even able to suffer in solitude, as the Occupy Wall Street movement literally hit banks where they live.

So what will 2012 be like? Will it mark a return to profit growth for banks, or a slide back into the crisis atmosphere of 2008? Will customers be treated to higher deposit interest rates, or higher fees? Or will a wild card such as technology dominate banking news in 2012?

Here are seven banking trends you have a good chance of seeing in 2012:

1. New fees arrive--quietly

After a media firestorm, Bank of America and others backed away from plans to charge debit card fees last year. However, addressing the PR crisis doesn't solve their P&L (profit and loss) problem. Big banks especially need to replace revenues lost to regulation and market conditions.

Having learned their PR lesson, look for banks to introduce new fees more quietly, primarily by raising existing fees, cutting back on free checking accounts, or raising the minimums needed to qualify for free services. Some banks have already raised interchange fees on smaller debit card transactions to make up for revenues lost to the caps on larger transactions.

2. Services become more restricted

If banks cannot recoup lost revenues from debit card interchange fees, look for banks to make those debit cards available to fewer customers, or to stop processing transactions from smaller retailers.

3. Branches disappear

Bank branches used to define a bank's geographic reach and market penetration. Now, those branches represent a high-overhead resource that is becoming outmoded in an increasingly online world. Some banks have already begun cutting branches, and this trend will likely accelerate in 2012.

4. Banking becomes more mobile

Mobile access to bank accounts saw a 45 percent increase in just the first half of 2011. Still, those users represent only a fraction of the mobile device owners in the U.S., the number of which has reached 90 million and continues to grow rapidly. This is the kind of trend that feeds on itself. As mobile banking customers become more plentiful, banks develop more and better applications for their devices, which in turn encourages more people to try mobile banking.

5. More customers embrace online banking

Whether via mobile devices, laptops, or good old-fashioned desktop computers, more and more customers will switch to online banking. As noted above, this trend will be encouraged by an ever-growing range of capabilities, but there is more to the story than that. Improving security measures will reassure customers that it is safe to bank online, and the trend toward charging for paper statements will give customers an added incentive to make the switch.

6. Electronic banking stirs the regulatory pot

The dust from the last round of banking reforms hasn't fully settled yet, and already those regulations may be outdated. Why? Blame the two technological trends listed above. New delivery systems for banking services will require new forms of oversight, but just where will this come from? The convergence of banking, telecommunications, and Internet companies will challenge traditional regulatory jurisdictions.

7. Rates (finally!) start to rise

The economy seems to be improving and inflation is above 3 percent. Add to that the fact that savings account rates are near zero and it seems that interest rates are more likely to rise than to fall in 2012. Higher CD, savings, and money market rates would be good news for depositors, though higher mortgage rates would represent the downside of this development.

There are many uncertainties to how these trends will play out. But with a still-unsteady U.S. economy, ongoing financial distress in Europe, and intense profit pressure for bank business models, you can bet it will be an eventful year.

Your responses to ‘Bank outlook 2012’

Showing 5 comments | Add your comment
john

20 February 2012 at 7:44 pm

Here in Oneida TN. the First National Bank makes its own Federal Laws.You cant get a fixed mortgage loan you have to take a floating note thats starts out 7.89% and goes up to 18% in 3 years.now floating means it goes up if the rates but cant come down when the rates do.WOW!! Plus they make you buy and fiance the payment book that i have never even gotten.If any of you have been done this way PLEASE contact the OCC if you are dealing with a National Bank that has done you this way.

mj

20 February 2012 at 4:41 pm

Eliminate...PMI...on all mortgages. That would greatly stimulate the housing market. Help to put people back to work. The consumer has more money to spend for housing items. Win...Win...suggestion.

rich

4 January 2012 at 12:47 pm

i don't feel sorry for any bank. its the banks who caused this problem with this realastate diasester by giving out mortageges to people who couldn't afford it. then they raised interst rates on credit cards, and always sent double payments, thank's chase

Julie

4 January 2012 at 10:47 am

Why should the interest rates for CDs and Savings Accounts be linked with borrowing interest rates? I realize this is a question for the Fed Bank...an answer would be welcome.

Leon King

4 January 2012 at 7:50 am

after reading this artical I am even more convinced to move my money to a credit union. Our entire financial system just dosn't work for the less then rich. It just cost us more and more of our lives.

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