Bank of America is working with California-based Palm Computing to provide its customers with instant account information over the "palm pilot," a computerized hand-held organizer that’s steadily growing in popularity.

The service, which may come out as early as this summer, would initially offer checking and savings account information, which would be updated daily. But B of A is also planning to introduce interactive banking, including a way to buy and sell securities via the personal organizer, according to Nick Berner, Internet alliances manager at Palm Computing. He estimated that the "next step of interactive banking" might be available in early 2010.

B of A hopes the new service will both pull in more high-net-worth customers and show that the bank is on the "cutting edge" when it comes to financial technology, according to sources.

"(Using a palm pilot) is a lot better than lugging a laptop around or some kind of quirky paging device," he said. "They are already something that people are used to carrying around."

The new service will use a wireless modem and be released with Palm Computing’s next organizer, Palm 7, due out in summer. The on-line brokerage company E*Trade is also working with Palm Computing. This summer, it plans to provide regularly-updated stock quotes and some transactional capabilities.

Berner added B of A is hoping to attract more affluent customers. "They won’t necessarily be able to do as many things on-line as they can with their personal computer," he said, "but the bank is providing one additional way for this customer segment to do their banking."

The service will not permit customers to browse the Web. Instead, it will provide so-called "Web clipping," in which owners of the Palm 7 will be able to "lock into" any Web site that has contracted to provide its Internet service through Palm Computing.

The cost of the Palm 7 will be between $600 and $800, according to Berner. Currently, it is possible, but very difficult, to add wireless Web access to old "palm pilot" models. "It used to be a matter of mind-numbing complexity," Berner said. "You would have to buy a separate modem and find some way of integrating the Web sites. In contrast, with Palm 7 you open the device and a few minutes later you can access the content that the providers have made available."

Berner said many other banks have expressed interest in working with Palm Computing. "I think once Bank of America comes out with it, almost every other large bank will feel they need to keep up."

Octavio Marenzi, director of electronic delivery services at Meridien Research in Boston, said B of A will also benefit by showing that it is on the "cutting edge" when it comes to new banking technology. "A lot of it is a marketing gimmick," he said.

Despite banks’ apparent fervor to enter new financial services arenas, such as brokerage products and insurance, they have dropped the ball and now must scramble to avoid getting left permanently behind, according to a report released last week by the Bank Administration Institute and the Boston Consulting Group. The report adds, however, that a quick reversal of the current trend could send bank retail revenues skyrocketing.

The report, Putting It Together: Convergence Strategies For Banking, Insurance and Investments, issues the industry a stern warning, citing woeful statistics of its rapidly falling "share of wallet." It proceeds to offer specific advice to turn the bleak situation around, including quickly increasing banks’ commitment to insurance and other mass market products.

The study asserts that the European system of bancassurance, in which banks have fully integrated insurance and investment products with traditional retail banking, should be used as a model by American bankers. The report cites statistics of the 50% share of the life and pension market in France held by banks, and the 30% share in Spain. By comparison, U.S. banks have 1% of the market. The European banks’ costs are 50%-70% lower than independent insurance agencies in Europe, and the branch sales system sells three to five times as many insurance policies as the conventional sales system, the report said.

John Garabedian, a vice president at the Boston Consulting Group who oversaw the study, said banks have fallen down and let business go to other more aggressive financial service firms by only making "halfhearted" commitments to the new markets.

"Banks need to make a commitment to improving the consumer insurance experience and leveraging elements of their existing administrative, marketing and distribution infrastructure to provide these products at a lower cost and with wider margins. By using their own networks efficiently, banks have the potential to double their profit per customer," Garabedian said.

The study cited statistics showing banks’ share of the retail financial services wallet has slid to 34% in the late 1990s from 50% in 1981, and that banks are paying even more to garner new customers, the majority of whom do not turn out to be profitable. The study counters that woeful picture with the assertion that banks are "well positioned" to reverse the trend by getting into the mass market with insurance and investment products.

Like their more successful European counterparts, U.S. banks are more suited to the sale of insurance than traditional insurance agents, the report says, because of their existing administrative infrastructures and customer base, trusted brand and a lower-cost sales force. The report asserts that if banks made a major commitment to insurance and "a more narrowly targeted commitment to investments," retail revenues could jump by almost 50%.

Other strategies the report touts include selling more aggressively to women and members of Generation X, who have traditionally been under-tapped by traditional insurers and financial advisors. Also, the report advises bankers to market more aggressively cash management products that bundle checking accounts with investment products and offer limited investment guidance to first time and young investors, to maintain market share.

The banking industry appears universally opposed to an initiative by the Federal Reserve Board to reduce the availability time on nonlocal checks to four days from five.

While all comments had not been processed by the agency by press-time, many trade groups and banks commenting said the agency should drop the idea. The comment period closed March 15.

Mandates on how long banks can hold up payment of checks were imposed by law in 1987, but the agency does have some discretion in extending or restricting the hold periods. In an advanced notice of proposed rulemaking published Dec. 14, the Fed said it is thinking of shortening the availability schedule for nonlocal checks from five to four business days, with institutions given the option of retaining the five-day schedule for some nonlocal checks. For those categories of checks, a bank must certify that it does not receive a sufficient proportion of returned checks within four days. The Fed also asked institutions to comment on the benefits and drawbacks to amending Reg CC, which governs the availability of funds and the collection of checks.

"Bank of America believes that regulatory and industry focus should continue to be on reducing or eliminating the delay of return information to depositing banks. This, in turn, would allow holds to be more closely tied to actual forward collection times," said Patrick Frawley, director of the bank’s regulatory relations department.

Sharon Royal, a lawyer for First Tennessee Bank, wrote: "The first thing for the Board to consider is simply the cost and disruption associated with requiring thousands of institutions to retrain their employees; to revise and replace hold notices to be furnished to customers; to revise documentation in which the institution’s Reg CC availability policy is explained; and reprogram computer systems "

"The congressional standard for determining whether to shorten the availability schedule–that two-thirds of the checks can successfully be returned within four days–has not been met, based on the Fed’s own survey," said Charlotte M. Bahin, regulatory counsel for America’s Communtiy Bankers. Moreover, she said, "Shortening the availability schedule would increase the probability of check fraud." That is because the Fed has suggested in its request for comments that banks would be required to make funds available even if they cannot determine whether sufficient funds exist to cover the uncollected balance of these checks, she said.

The Commerce Committee, the next stop for financial services modernization legislation in the House, is likely to change the bill to require banks to conduct securities activities in holding company affiliates under total Securities and Exchange Commission oversight, according to officials and lobbyists.

And, in the Senate, where the Senate Banking Committee passed a similar bill, but without bipartisan support, Sen. Phil Gramm, R-Texas, the panel chairman, said he also hopes to put the bill on the Senate floor in early May.

However, big obstacles remain for passage this year. For example, the Commerce panel is seen as likely–under pressure from the securities industry–to toughen privacy provisions now contained in the bill that would limit banks’ ability to use their existing customer database to market investment products. Representatives of major money-center banks made clear last week at a meeting of banking industry lobbyists in Washington that if the privacy provisions are toughened they will drop support of the entire bill. And unitary thrift holding company provisions in both the House and Senate bills are under heavy fire from bank trade groups and the Federal Reserve Board.

Both changes, plus amendments to the bill passed by the House Banking Committee March 11, are likely to reduce banking industry support for the measure, which is already eroding.

The bill that passed the House Banking Committee by a huge margin repeals the Glass-Steagall Act and allows banks to conduct most non-banking activities in either an affiliate of the bank or an operating subsidiary. In general, both bills allow banks to conduct insurance, securities underwriting and merchant banking activities, but only under the oversight of existing regulators.

However, the bills differ in the areas of permissible operating subsidiary activities and Community Reinvestment Act requirements.

The Commerce panel has oversight over the SEC and is seen as unwilling to give up oversight of securities activities.

Congressional work on bankruptcy reform is intensifying, with Senate and House panels planning markups this week on legislation similar to that which failed to pass Congress last year.

But the bills are different, with the Senate’s more bipartisan bill substantively diluting the "means test" provision in last year’s bill which was very strongly opposed by consumer groups, Democratic members of the Senate and the Clinton Administration. That opposition is what killed the bill, which is supported by the credit card industry.

Rep. George Gekas, R-Penn., head of the commercial and administrative law subcommittee of the House Judiciary Committee, has scheduled a markup on his more restrictive bill for March 24-25. In the Senate, Sen. Charles Grassley, R-Iowa, chairman of the Judiciary Subcommittee on Administrative Oversight and the Courts, scheduled a markup of his bill March 25. The Senate Republican leadership is indicating it wants the bill on the floor in April, with or without Democratic support. But Grassley does have Sens. Robert Torricelli, N.J., and Joe Biden, Del., as Democratic co-sponsors.

Even though House Republicans have been able to win significant Democrat support for their bill, it is still likely to face opposition if the means-test provision is included.

The seeds of a compromise on the House bill could be in the form of legislation recently introduced by Rep. John LaFalce, D-N.Y., ranking minority member of the House Banking Committee. LaFalce, who testified last week in support of his bill before Gekas’s panel, is calling for far greater disclosure by credit card companies of the potential pitfalls of credit card debt.

The bill requires a more complete disclosure of all credit card terms and costs, including "teaser rates." It also bans credit card issuers from canceling an account or imposing new fees on card holders who routinely pay off monthly card balances in full. The bill also prohibits credit card companies from issuing credit card accounts to people under 21 years of age, except with parental approval or evidence of means of payment.

There are four main differences between the two bills. First, the means test in the Senate version gives bankruptcy judges greater discretion in considering whether to transfer a debtor from Chapter 7, which means the debts are fully discharged, to Chapter 13, where the debtor needs to repay all or some of the debt. The Senate version also has greater consumer protections designed to lessen pressures from creditors for debtors to "reaffirm" debt that would normally be discharged in bankruptcy, plus greater protection for child support payments. Finally, it has a reduction in the amount of unsecured debt that would be made nondischargeable by the new law.

International banking supervisors are considering raising capital requirements on loans to developing countries and hedge funds, a senior regulator said recently.

The new system would use bond ratings to determine the capital charge on loans to sovereign governments, said Stephen C. Schemering, deputy director of banking supervision at the Federal Reserve Board.

Reserves would not be required for loans to countries with the top credit ratings, such as AAA or AA-minus, he said. Credits to countries with A- plus or A-minus ratings could carry a 20% risk weighting, he said. That means the bank would hold 20% of the standard 8% capital charge, or 1.6% of the loan, as a reserve. Countries with very low credit ratings could be subject to a 150% risk weighting, which translates into a 12% capital charge, he said.

International regulators also are considering a 150% risk weighting for loans to "highly leveraged institutions not subject to regulation," Schemering said during a workshop at the Independent Bankers Association of America convention. That is how regulators typically describe hedge funds.

The 150% risk weighting also would apply to "impaired" loans, though he provided little detail on what it would take for a credit to be considered impaired.

Schemering cautioned that the proposal is a draft and significant changes could be made before its expected release next month. Yet this would be the first time international regulators ever set capital requirements above 8%.

The capital proposal also would change the treatment of loans to other banks and securities firms, Schemering said. The reserve requirement would be one risk bucket higher than the capital charge for loans to the borrowing bank’s home country government, he said.

That means a loan to a U.S. bank would be subject to a 20% risk weighting. Mortgage loans would continue to fall into the 50% risk bucket, he said. Regulators plan to continue to require the full 8% reserve on all corporate loans, though Schemering said there is some talk of discounting the required reserve for loans to AAA-rated companies.

Despite intense competition in the Connecticut market, Webster Financial Corp. has more than quadrupled in size over the last five years– fueling that growth by closely observing customer needs.

The $9-billion-asset thrift’s expansion, up from $2.1 billion five years ago, has also stemmed from an aggressive acquisition strategy that has benefited, at times, from mergers between Webster’s big regional competitors. It picked up divested branches from Fleet Financial Corp.’s merger with Shawmut National Corp. in 1996, and it is a likely contender to benefit from Fleet’s merger with BankBoston Corp, announced last week.

John Brennan, Webster’s chief financial officer, said last week it was too early to consider assets that the proposed Fleet Boston Corp. will almost certainly have to divest. However, Webster gobbled up 20 branches and $850 million in assets and deposits directly from the Shawmut merger, and wound up with the remaining branches divested in Connecticut when it bought Eagle Financial in 1997.

Although Webster sees the importance in the new fee-income businesses that banks are getting into, its growth largely occurred on the back of thrifts’ traditional mortgage lending business. Fee-based income jumped just over 5% last year to 18.5% of total income–most of which stems from servicing loans–and is expected to climb to 25% in the next three to five years.

"If you think about our overall strategy, we already were a strong residential mortgage lender, a strong home equity lender, a strong deposit taker," Brennan said. "But we’ve been trying to broaden our product line over the last several years and we’ve been getting into other fee income lines, trust and investment management services and insurance."

The bank has two main strategies to gain even more market share. One is understanding the customer as thoroughly as possible with the help of market focus research groups and other marketing tools. The other is having better customer information to retain those customers driving the bank’s profitability, and offer them the best products and services for their needs through direct marketing, Brennan said.

John Menke, the bank’s database manager, said what sets Webster apart is that its database includes a lot of information most bank databases don’t have, such as data on specific transaction behavior of customers–not just what channel was used, but the specific location. And it makes better use of the information. "This information allows us to understand what we can do to effect a change in those behaviors, to increase the value of that product for both the customer and the bank." He said because the information is organized in a single data mart, the bank can view the true value and depth of a relationship.

Additionally, because models are getting better and better, the bank is better able to predict what services the customer will need. This week the bank is getting software delivered that will predict the most likely product a customer will purchase. "It’s just guidance, but in many instances, that’s all that is needed to get the customer to sign up for the additional service," Menke said.

Looking carefully at customer needs has kept Webster’s traditional banking business competitive, but Brennan said the bank–which anticipates keeping its flexible thrift charter–is looking into new areas to increase fee income and provide customers with a broader range of products.

One such effort was its purchase in June 1998 of Damman Insurance, which has clients all over the country. The insurance company is stationed under the holding company, whereas the bank’s other business lines are under the banking subsidiary.

He said the company’s purchase earlier this year of Access National Mortgage, an Internet mortgage company with $350 million in origination volume in 1998, fits into the strategy by increasing fee income. "And that’s one of the big differences as we evolve into a financial services provider; products that generate fee income rather than spread income," Brennan said. Access originates loans in 47 states.

The bank’s 105 branches across Connecticut have what Brennan calls "pretty strong" market share, ranking third in deposits in the state. It ranks either first or second in the Hartford, New Haven and Litchfield County markets, with at least 30% of the households in those areas banking with Webster.

The bank also originates loans in surrounding states, but it is not in a hurry to cross borders, Brennan said. "We would probably consider branching into other states if we could make it work economically. One of the problems with branching today is always somebody in that state that has greater cost savings because they’re there."

Brennan said part of the bank’s ongoing facelift involves diversifying the products and asset mixes. Currently, the bank has about 75% of its loans in residential mortgages. The goal over the next three-to-five years is to lower that number to 55%, while increasing the percentage of consumer and business loans to 25% from about 12% now. On the deposit side, the story is similar: management wants to boost checking accounts to 22%-23% from 19% now, while deflating CDs to 50% from the current 55% of deposits. The remainder, savings accounts and money market deposit accounts, is slated to drop to around 28%.

Striving for fewer and lower-cost deposits fits into Webster’s overall modernization strategy: "By increasing our commercial/industrial lending, small business lending and consumer lending–instead of residential mortgages–we will be selling more of those loans and retaining servicing, (thus giving) customer value," Brennan said.

Banks selling insurance are running into a problem with what should be a slam dunk: selling homeowners’ insurance to customers who have just taken out a mortgage. Solving the quandary is one of the main goals for the industry, sources said.

The problem arises when a bank turns to its insurance carrier to underwrite a policy and the underwriter cannot write any more policies for a particular area. Similar to a quota system, insurers do not want more than a certain amount of coverage in specific geographical areas, because significant coverage could mean financial ruin in the case of a natural disaster. The industry learned this lesson back in the early 1990s after Hurricane Andrew ripped through South Florida, causing hundreds of millions of dollars worth of damage.

To ask an insurer to write more policies in an area than it deems inappropriate, a bank would have to be able to balance the insurer’s exposure in danger-prone areas by bringing more production in non-danger areas. Today, the party who is protecting the primary insurer, the reinsurer, charges the insurer more than it would be worth to take on the extra business. Because the primary insurer has committed to the secondary insurer to fix the concentration of losses, the primary insurer must pay a hefty fee to go over the limit. So, in this situation, the bank’s insurance agency must find another underwriter to write the policy–and it may also be at capacity for that area.

Sources said now the only thing to do is work to appease insurance carriers by bringing more business in other areas. But that has not proved easy.

"That is the one thing banks hope to be able to do, especially ones that operate in many states. They can help insurance companies keep their ratio limits in line to help balance out coverage in less attractive areas. I haven’t seen many cases where they can make that work. It’s very early in these programs and they haven’t generated performance to show how much volume they’ll be able to generate. It’s hard to convince (insurance carriers) you can bring value," said bank consultant Frank Caccione, of the Mitchell Madison Group.

Jeff Huff, manager in sales for property and casualty for one of the bank-in-insurance industry leaders, BB&T, said the problem of insurance companies struggling to make the homeowners’ insurance line profitable is a tricky one. If a bank’s insurance unit has enough contractual relationships with enough carriers, he said, a policy can usually be found; it’s just that it will not be at a sellable price in the market. This is because some giant carriers that distribute only to their own agents, such as State Farm or Allstate, will probably have lower prices. But, at the same time, Huff said, "The bigger the bank and the more spread they have, the harder it is to have the right company for all the opportunities that it would have to provide insurance. Most banks are having some heartburn over this. How do you be all things to all people, but do it efficiently with as few carriers as possible? This is getting a lot of tension now as the industry consolidates."

He said BB&T has tackled the problem by trying to work with all of its carriers to understand their strategies, weaknesses and strengths. "We try to direct business to companies’ strengths as best we can. We hope they’ll look favorably on us and allow us to carry the banner into new territories for them. You just feel your way through the thing," he said.

The financial engineers behind the recently announced merger between Fleet Financial Group and BankBoston Corp.have chosen the pooling method of accounting, which avoids the creation of goodwill and any unsightly recurring charges to earnings. That probably wouldn’t be possible, however, if the Financial Accounting Standards Board’s current proposal to account for business combinations comes to fruition.

FASB is dealing with the question of when merging institutions must choose the pooling or purchase methods of accounting in the last week of March or first of April. However, FASB representatives have clearly stated that the standard setter is seeking to better harmonize accounting rules worldwide, and that bodes for much tighter restrictions on the use of pooling. International accounting standard setters generally permit pooling only when institutions are very close in size in terms of market capitalization. Fleet’s market cap, at about $23 billion last week, is nearly twice BankBoston’s at $13 billion.

"It’s hard to say because FASB hasn’t addressed the question yet, but it seems likely that pooling wouldn’t be permitted in this case," said Robert Willens, Lehman Brother’s accounting expert.

Assuming the newly merged bank, to be called Fleet Boston Corp., is denied the pooling method of accounting and must resort to the purchase method, the proposed standard would result in approximately $11 billion in goodwill. BankBoston Controller Terry Jefferson estimated that separating straight goodwill and core deposit intangibles, and then merging their typical 25-year and seven-year lives, respectively, would result in an average life of 15 years. Dividing that into a total of $11 billion in goodwill would result in a $733 million hit to earnings each year under current accounting. That hit would increase at least slightly for banks under the proposal because it presumes goodwill to have a life of 10 years or less, and sets a cap of 20 years, down from 25 years today. Other companies have a 40-year cap today, which under the proposal would double amortization in many cases.

The good side of being forced to use purchase method of accounting, however, is that it would give the new bank about $16 billion to reinvest in other business or stock repurchases, with restrictions on capital management.

There are complications, however. The proposal requires the merged entity to measure the value and useful lives of the various intangibles–such as brand, customer lists, trademarks, core deposits–and amortize them accordingly. Kim Petrone, FASB’s project manager, explained that there is more flexibility with intangibles, and that some may have lives over 20 years, or even indefinite lives eliminating the need for amortization all together–"If you can presume indefinite renewal, and there’s an observable market–like an FCC license–then you wouldn’t have to amortize it," she said.

Accounting sources fretted, however, that the proposal, particularly with respect to intangibles, not only may be difficult and burdensome to implement, but perhaps impossible.

The largest in-market bank merger in years, between Fleet Financial Group and BankBoston Corp., seems destined to result in dramatic realigning of the banking industry in New England and significant layoffs. Those two probabilities have an array of community groups already planning their opposition.

Ray Neirinckx, coordinator of Rhode Island Community Reinvestment Association, said his group is planning to voice its opposition to the mergers with regulators as well as rally other community groups. He added he believes the projected 5,000 cut jobs is a major issue.

"We are extremely concerned because job loss is a reinvestment issue. The devastation has a multiplier effect on local economies so we clearly see job losses as a CRA issue, Neirinckx said. He added that the current projection of 5,000 layoffs will likely increase. "A year later, when contracts expire, people are not renewed, they are reorganized, whatever the buzzwords are for ‘you’re out of a job.’"

In addition to the economic effects of layoffs, the merger is anticompetitive even after the newly-formed behemoth’s planned divestiture of $13 billion in deposits, said Matthew Lee, a consumer advocate attorney for Inner City Press/Community on the Move. The group, which has been active in pressing merging financial institutions, including the recently-formed Citigroup, on Community Reinvestment Act obligations and other consumer concerns, posted a Fleet Bank page on its Web site. The group is highly critical of the proposed merger, and calls for the Federal Reserve Board to deny approval. It describes the merger as anti-competitive and paints Fleet as a "fair lending rogue."

"Fleet has had long-term concerns," Lee said, citing a settlement the bank made in May 1996 with the Department of Justice on charges of discrimination for systematically overcharging minorities in the New York-area mortgage offices. Lee said that his group has monitored the bank’s mortgage lending operation in New York and New Jersey for some time and found no improvement. He noted in Long Island, N.Y., statistics for Fleet Real Estate Funding in 1997 showed 31% of denied applications to refinance mortgages were from African Americans, versus only 14% from whites–a 2.21 denial-rate disparity. It’s "much worse than the industry average in (statistics)," according to the Web site.

Lee cited other examples of disparities in New York and New Jersey, and said the bank’s CRA record alone is grounds for denial of the merger by the regulators.

The group also calls the merger anti-competitive due to its sheer size and concentration in the northeast.

"This is as classic (antitrust) as you can get," he said, noting that by law in Massachusetts and Rhode Island no bank can control more than 30% of the state’s deposits. The new bank would have 37.61% in Massachusetts and 51.63% in Rhode Island. While significant divestitures are planned, Inner City Press contends that the competition issue will remain because, practically speaking, there will be no other superregionals left in New England.

"What competition is really going to be left? A small bank with 10 more branches? It’s still not a credible competitor to Fleet. There’s one market for regional and superregional banks, and one for small banks, but they don’t compete. They won’t have the same products or the same turnaround time. It actually hurts access to credit on a fair basis to have no competition," he said.

Lee added that his group will also work with the Massachusetts Affordable Housing Alliance to oppose the merger by writing letters to regulators and testifying at hearings.