Bank Giveaways

When a buddy meets a buddy

Some deposit-starved banks have long tried attracting new business with gifts like toasters and TV sets. But the latest gimmick is an improbable appeal to human friendship. Banks in New York, Chicago and St. Paul are now making their pitch to the potential customer's pals. "Bring a friend," advertises New York's Manufacturers Hanover Trust. If someone deposits $75,000 for 2 1/2 years, his pal will collect a sponsor's fee of $2,343.75. The First National Bank of Chicago pays a finder $25 for each $1,000 deposited by a buddy into a 30-month fixed-term account. Other banks reward friendly persuasion with grandfather clocks, microwave ovens and electric organs.

The bankers bearing gifts are trying to circumvent Government regulations that limit competition among financial institutions. The Federal Reserve's Regulation Q has long kept a lid on interest rates that banks or savings and loans can pay. Banks have sometimes attempted to get around that law by giving lavish gifts instead of paying interest. One New York bank, for example, offered an $84,000 Rolls-Royce Silver Shadow to anyone who would deposit $160,000 for eight years. But there were no takers.

Then clever moneymen discovered another loophole in the rules: give the gifts or bonuses to the depositor's friend. Gifts of cash generally have proven more popular than appliances and other goods, possibly because cash can be more easily divided.

Some bankers are unhappy with the buddy system, but most of them admit that it has been effective. Richard Hannafin, marketing director for the East New York Savings Bank, says that about 3,000 new accounts have been opened since the bank introduced gifts for friends. More important, he believes, the giveaways have been instrumental in dissuading old customers from pulling their money out of the banks.

The only loser in the deal appears to be the buddy depositor. Normally, he would earn much more interest if he placed the funds in a money-market fund rather than in a bank's passbook account or certificate of deposit. That should be enough to break up a friendship.

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