11/02/2011 11:23 am ET Updated Jan 02, 2012

4 Signs of a Shrinking Bank

According to SNL Financial, JP Morgan has just beaten out Bank of America as the largest U.S. bank in terms of assets. That means Bank of America's strategy is working out just as they planned.

You see, Bank of America is trying to shrink rather than grow. There are a variety of reasons for this, including the need to reduce overhead, economic setbacks, and new regulatory constraints.

The details of the banking industry don't interest most bank customers. Still, as a customer, you should pay attention to the overall direction of a bank's fortunes. It is much better to be with a bank that is in growth mode than with one that is trying to shed customers and accounts as fast as it can.

Here are some things you might experience if you are with a bank that is trying to cut back:

  1. Low interest on savings accounts. A bank that is in a defensive posture isn't likely to be assertively attracting customers with competitive CD, savings and money market rates.
  2. New/higher fees. Banks that are gasping for profitability will make desperation moves like adding fees. Checking accounts are often a target. Raising existing fees, or adding new types of fees, always looks good on a spreadsheet, but it often doesn't work out well for a business in the long run because it drives away customers. To the customer, increased fees are a bad sign on every level.
  3. Service reductions. Another way struggling banks try to restore profitability is by cutting back on customer service. This may mean fewer branches, fewer representatives available, or a narrower range of products.
  4. Disgruntled employees. Employees who know their organization is cutting back rather than growing aren't thrilled about their career prospects -- and often aren't a joy to deal with.

While growth is generally a healthier sign for a bank, as a customer you should focus on banks that are striving for organic growth rather than those that grow by mergers and acquisitions. Outside acquisitions don't always work out so well -- just ask Bank of America about Countrywide Financial.

The original article can be found at

"4 Signs of a Shrinking Bank"