reached flood proportions last year-with an assist from the Internet. Leading the onslaught were technologically savvy brokerage companies with designs on becoming the full-service financial institutions that banks could once uncontestedly claim to be. Full- or fuller-service status was coveted by others. State Farm Insurance was the most prominent and potent of many nonbanks to get thrift charters. Stephen Hilbert, chairman of the insurer Conseco Inc., spoke of plans to "build the finest financial services company in America" after his company acquired Green Tree Financial Corp., the manufactured-housing lender. But the trend was most pronounced on the Internet, where brokers such as E-Trade Group, Charles Schwab & Co., and DLJ Direct not only looked like category killers, but also began to dabble in loan and bill-paying services and even went international. Christos M. Costakos, president and chief executive officer of E-Trade, is not alone in his plan to become a "one-stop financial services destination" for people around the world. His stock recently surged on news that the company had captured 500,000-plus customers since it officially launched its financial-portal strategy in September. Brokers on the Net have "seen their trading volumes triple or more this past year," said Alexander Stein, principal of Gomez Advisors Inc., Concord, Mass. "They have grown out of all proportion to how the brokerage industry in general has been growing." Most worrisome to banks is that the competitors "can handle asset management accounts and loans," Mr. Stein said. "They can deliver traditional banking services at a very low cost." Blake Darcy, CEO of DLJ Direct, said he sees electronic brokerage as a gateway into a full range of financial product offerings. Last fall the on- line arm of Donaldson, Lufkin & Jenrette Inc. added a mortgage service in partnership with E-Loan Inc., which also works with E-Trade. "The lines between bank and broker are fading," Mr. Stein said. Companies that grew up on the Internet "have a lot less legacy technology to hold them back" and "are poised to go after every profitable product segment." "Most financial services companies were established and run so that when the customer wanted something, he or she came to the institution," said consultant William D. Turnery, vice president in A.T. Kearney's financial institutions group. Now "the race is to put the products and services that someone needs wherever they are." In more traditional fashion, Merrill Lynch & Co. chairman CEO David H. Komansky has expressed interest in several banking niches, like trust services and transaction processing. With a thrift charter, State Farm, the largest property/casualty insurer, can turn any or all of its 16,000 offices into bank branches. In a speech last month, John B. McCoy, president and CEO of Bank One Corp., said there is no greater evidence that "the barriers to enter the banking business are coming down." He said it is high time for congressional reform of the banking laws before market forces do any more damage to the old ones. Despite the encroachments, the news for traditional banks was not all bad. U.S. commercial banks will probably post another full-year earnings record and they have customer relationships, brand names, and brick-and- mortar presences that some newcomers may find hard to replicate. Mr. Stein of Gomez Advisors said banks have "a window of opportunity" and, by expanding into brokerage, can "serve a very important customer base-the one-stop shopper." Managements will have to be "unfettered from the way they have done things in the past," Mr. Turnery said. "This is very difficult-but you'd rather do that than lose your position to these new folks that offer the newest product or the lowest price against you."

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