Premium manufacturers -- those who make the clock radios, calculators and golf clubs that banks currently give away in exchange for new accounts -- stand to lose $200-$300 million a year if the practice is banned, according to a premium sales officials.
More than a hundred premium distributors, whose customers are almost entirely banks and other financial institutions, probably will go out of business, he added.
This gloomy assessment by Howard Henry, executive director of National Premium Sales Executives, comes in the face of a proposal this week by federal financial regulators to halt the giveaway of merchandise by banks.
Premiums in the form of goods for opening a new acount, adding to an account or referring a new customer to a bank, would be prohibited. Interested parties have 30 days to comment on the proposed regulation.
As financial institutions have become harder and harder pressed for funds because depositors are withdrawing their money to put it in higher-yielding investments, the gift premiums have become bigger and better. Eleven hundred manufacturers were showing their wares to 30,000 buyers at the semi-annual show at the New York Colosseum this week when the Depository Institutions Deregulation Committee dropped its bombshell.
"It was wholesale bedlam," said Neil Kanney, a Long Island distributor. He said his company, which sells $6 million a year in premiums to banks, would go out of business.
James Hughes, who represents J. Edward Connelly Associates of Pittsburgh, the largest distributor with over $50 million a year in sales, fears a similar fate.
"A $300 million industry is gone to heck," said Al Nowicki, a distributor from Silver Spring.
Gene Knapp of Timex Corp., the watch manufacturer, said nervous distributors had canceled $1 million worth of orders in the first two hours after the announcement.
Henry -- whose organization represents manufacturers, distributors and users of premiums -- denounced the regulation as uneconomical. According to this estimates, it costs banks about 2 percent to obtain new funds by giving away premiums but much more when banks have to borrow.