In a message dated 3/17/2003 11:29:51 PM Eastern Standard Time, [EMAIL PROTECTED] writes:
Small
banks earn from the interest rate differentials; presumably, large banks
from fees. But why would banks pay a premium for the small banks? What
sort of fees would they generate?
As the article mentioned, the small banks have had those differentials squeezed. Also, they are not in a position to offer their local or regional customers a supermarket of other products like insurance or investment funds. Small banks just do the 'plain vanilla' business of taking in deposits and lending out money.
The larger banks, thanks to all sorts of deregulation, have the ability to take a small bank customer base and 'milk it' for other more profitable businesses. That's why they don't mind paying a small (in dollar terms) premium. Larger banks assume they'll get fees from small bank customers who would widen the range of financial services they transact with their bank. These services would include buying and selling stock, taking out life insurance or paying high credit card fees, etc. Not quite the sizeable fees that institutional clients provide large banks, but fine in a pinch.
Nomi
