In a recent letter to "Dear Abby," a hotel guest complained that each day an envelope was left in her room suggesting she leave "a pittance" for the maid.

When she inquired about it, a hotel official explained that turnover of housekeepers is high. The work is unpopular, he said, but rewards from the guests were a major morale booster.

Dear Abby responded that she found the "reminder" coercive. "The high turnover rate is a problem of the housekeeper, not the guest," she wrote. "And to impose that upon the guest is not only bad manners - it's bad business practice."

Unfair Burdens

In my opinion, banking is doing pretty much the same thing - adding charges here and there to cover costs that truly should be borne by the bank.

We long have seen the practice of banks trying to cover the cost of reserve requirements by clipping the size of balances on which they pay interest or by reduction of earnings credits, which accrue in lieu of interest.

It may seem logical to pass along the cost of the Federal Reserve's requirement that banks keep a percentage of deposited funds idle.

But in my book, this is insane. The customer doesn't know or care about bank costs and requirements. Customers put money in the bank and want a return on it - and that's all they know.

Counterproductive Tactic

The corporate treasurer who puts money in Treasury bills or commercial paper does not expect his investment to be subject to a haircut to meet the costs of the issuer doing business. Why should he face this haircut on a bank deposit?

All the haircut does is encourage large depositors to cut bank balances to a minimum and place their extra funds elsewhere.

Reserve requirements are a cost of doing business. Banks take in money to lend and invest. If they cannot cover their costs of holding deposits because of expenses like reserve requirements, they should take one of two steps: Charge more for the loans or pay less interest on deposits.

Both actions are aboveboard and give the customer an honest price or return to compare with alternatives. To nickel and dime the customer instead through clipped earnings credit is, as Dear Abby would say, "bad business practice."

Bad Advice

As if this traditional problem were not bad enough, now we find even so esteemed and savvy a marketing analyst as Jack Whittle, chairman of Whittle & Hanks in Chicago, giving some very doubtful advice. He suggested at the recent convention in Boston of the American Bankers Association that banks should charge their customers for deposit insurance!

Nearly a third of depositors don't open their statements; more than 50% don't bother in August and December, he said. "These are the months to reprice."

Mr. Whittle recommended a once-a-year charge for deposit insurance. Announcement of the charge, he said, should be accompanied by a letter explaining how deposit insurance works and that it is paid for by the bank, not the government.

He then added that bankers should train their people to prepare them to explain this charge when asked.

I find this crazy. First you have the problem of when to apply the charge - should it be on the largest balance for the year, the smallest balance, or the balance on one particular date every year?

And again you are saying to the customer, "We have these terrible costs. Help us out." It would be like me telling my students, "We are going to have a surcharge on your tuition because my son wants to go on a soccer trip to Europe and it will be expensive."

Risking a Rebellion

My feeling as a customer would be, "If you can't cover your costs without clipping my balance, I'll find a bank that can."

Of course, banks rely on the customer's inertia to impose many of their incidental charges. "You have to insult a customer many times before that customer will pull an account" is the typical bank philosophy.

But there will finally be a straw that breaks the camel's back.

Bankers brag that they have "relationships" with customers. Does this mean that the customers hang on through thick and thin while the bank slowly chips away at their balances through veiled charges that it hopes they won't uncover or understand?

Genuine Relationships

Much smarter is the approach of banks that are trying to cement relationships through promotions like that of Citibank in New York. That bank recently said it will include the value of securities bought through the bank's affiliate and held at the bank in determining whether the customer has a big enough balance to avoid or reduce service charges.

Similarly, Premier Bancorp, Baton Rouge, La., sent a $50 coupon to all shareholders, to be used as a bonus for opening an interest-bearing checking account. This cements relationships rather than chiseling away at them.

And in another industry, airlines build customer loyalty through frequent-flier clubs.

Charging for ATM Cards?!

We could add one other example of nickel and diming: the annual or monthly fee for an ATM card. This is how banks exact a price for use of their own machines.

Granted, when a customer uses another bank's machine, the customer's bank incurs a cost directly chargeable to the customer, which should be passed on.

But to charge for the card doesn't make sense. The objective should be to encourage ATM use as an alternative to tellers.

Banks pride themselves on relationships with the customers and the longevity of these relationships. But when balances are viewed as pots of gold to be dipped into for costs the bank should bear, relationships may be strained to the breaking point.

Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.

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