How a Huge Merger Shows the Future of Banking

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You might not think that a multibillion-dollar deal between two European banks would affect your own (considerably more modest) financial situation. But it just might. Thursday, Germany's Deutsche Bank and Dresdner Bank announced plans to join in a "merger of equals" to form Deutsche Bank AG. The new company's total assets will be valued at a jaw-dropping $1.3 trillion, making it one of the largest financial institutions in the world. Not surprisingly, those profits won't be scraped together from the holdings of the average Helmut's personal bank account; the merger announcement included a plan to eliminate the retail (or consumer) services in order to concentrate on corporate and investment banking.

That's not a surprising move in today's financial climate, says TIME financial writer Bernard Baumohl. "The retail side of things has always been the least profitable aspect of banking, because you have to lease property and pay tellers." Traditional banks have also been losing individual customers to an ever-widening array of brokerage houses and online banks. By adopting an institutional angle, Deutsche Bank AG will be able to overlook those market risks — but where will their individual customers go to do their everyday banking? If Germany follows U.S. banking trends, says Baumohl, there will be a bunch of community banks jumping at the chance to fill the storefronts left empty by the departing giants. "In the U.S., as large banks get rid of their retail services, we have seen, surprisingly, an explosion of small neighborhood banks that capitalize on the idea that people will pay a bit extra to see a friendly face." And smart marketers won't underestimate the appeal of a smile: Counterintuitive as it may seem in today's high-tech, high-volume world, these community banks — whose primary selling point is their lack of size — are thriving.