Chicken And Checking Regulators Concerned About Proliferation Of Tiny Supermarket Banks

On one side of the grocery aisle, the frozen foods case offers up cold, hard waffles. Across the way, a tiny Provident Bank branch deals in cold, hard cash.

Provident’s outpost inside the Metro Food Market here is part of an expansion effort by banks nationwide to bring banking within the reach of avocados, Chapstick and a gallon of milk. Welcomed by consumers for its convenience, it poses an unusual challenge for bank tellers.

“It’s always cold here,” laughs Amanda K. Tosoni, the branch’s assistant sales manager. “Even in the summers, we have our sweaters on.”

But, chicken and checking - as it’s sometimes called - poses a more serious challenge for Wall Street’s watchdogs.

They warn that such small branches, tucked inside the frenetic atmospheres of modern supermarkets, make it harder for customers to tell the difference between federally insured deposits and the riskier Wall Street investments that banks also now sell.

“You have a whole different atmosphere, where people are making critical decisions,” such as whether to go into debt or where to invest their savings, said Mary Griffin, a bank analyst for Consumers Union.

At traditional bank branches, investments like mutual funds and annuities are supposed to be sold in a separate area, away from the bank teller’s window and its more routine transactions.

But the cramped confines of supermarket banks, some of which are about the size of two parking spaces, make that physical separation difficult, and increase the risk that customers might confuse a bank’s Wall Street offerings with its traditional checking and savings accounts.

The National Association of Securities Dealers Inc. has proposed new rules that seek to eliminate customer confusion when banks sell investments, such as mutual funds and annuities, that aren’t protected by the Federal Deposit Insurance Corp.

“The whole intent of the rule is geared toward eliminating customer confusion,” said R. Clark Hooper, an NASD vice president.

The NASD’s proposals would allow banks to still sell such investments from the 3,100 supermarket branches nationwide, as long as they took additional steps such as posting signs, or segregating the activity as much as possible.

“We’re not saying it can’t be done. What we’re saying is that it’s more difficult, and they need to be aware of that,” Hooper said.

The issue comes at a time when recent surveys indicate big banks have fallen behind in their efforts to eliminate such confusion, even at their traditional, roomier branches.

Prophet Market Research of San Francisco conducted a survey of brokers at 50 large banks that found one in four brokers weren’t telling customers the investments lacked FDIC insurance, or otherwise failed to follow bank regulators’ investments sales guidelines.

The survey, released in January, indicated that brokers’ behavior was worse than during a similar survey in August 1994.

“The industry as a whole is clearly backsliding,” said Scott Galloway of Prophet Market Research.

Banks, which view supermarket branches as a lucrative growth area, had opposed earlier, tighter proposed restrictions from the NASD, but seem more open to the latest proposal.

At Provident and several other banks, officials stress they’re well aware of the concerns and do everything possible to eliminate customer confusion.

At National Commerce Bancorp in Memphis, Tenn., for example, customers at supermarket branches are referred to brokers who set up separate appointments away from the grocery store.

At the chilly Provident branch, there’s a small, separate room where customers discuss stocks or mutual funds with bank employees who hold the proper broker licenses. Non-insured investments aren’t sold over the teller counter.

The brokerage arm has separate business cards and stationery with a different logo and color from the bank’s cards, said Donald Sheeler, president of the brokerage arm, called Provident Investment Center Inc.

“We go out of our way, both in the bricks and mortar (branches) and in the supermarket, to see that customers are not confused,” Sheeler said.