Many community bankers considering adding brokerage services have decided they don't want to do it.

This is an attitude that many banks have held for years. And recent trends have hardened their resistance to brokerage services.

I remember when my local bank gave up its brokerage operation about a decade ago. Though the bank was doing about 50,000 transactions and making $50,000 a year, the chief executive said, a lawsuit from one of those transactions could have cost the bank at least that much.

Competition and the Internet have so cut commissions on stock transactions that people can do a trade on-line for less than $20. This reduces profit opportunity.

A recent study for the Federal Reserve Bank of San Francisco by senior economist Simon Kwan showed that securities trading can only increase banks' return on equity by "proportionately increasing their risk exposure."

While most community bankers would agree with this conclusion, many on the investment side of the financial community say they believe that bank expansion into brokerage and investment banking will be moderate at best.

Still, there is opportunity for community banks. At a recent conference held at Pace University, William C. Freund, a Pace finance professor and formerly the New York Stock Exchange's chief economist, said service fees will replace trading commissions as the basis of Wall Street income.

This is right up the community banker's alley. The most important product the community bank has to sell is the financial expertise of its staff.

Already a few banks are charging customers on a fee-for-time-committed basis, much as lawyers do.

The standard-commission brokerage firms competing with on-line traders say people are willing to pay higher commissions for full service.

Think of the advantage the community bank has over even these full- service brokers. The banker is not pushing one investment over another because of a commission differential, a motive that can influence brokers' recommendations. The banker's fee is solely based on time spent.

And in most cases the banker has better training and financial understanding than the retail broker. It takes far more experience and training to become a banker than a broker.

So maybe community banking still has a major role to play in brokerage. It just may be different from the one we thought these banks would play when the convergence of banking and brokerage started.

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