It's hard out there for a bank. Last year, retail banks lost a major revenue source when the government regulated overdraft charges. This year, they took another hit when the government capped the debit card fees. And amidst an anemic credit market, they're having trouble finding investment opportunities for their deposits.

According to the New York Times' calculations, it costs the banks $200 to $300 a year to maintain a checking account, but they're only earning $85 and $115. So now they're scrambling to find new ways to charge customers, from conspicuous checking fees to sly little charges that sneak into bank statements.

But hold on a minute. Why does it cost $200 to $300 to maintain a checking account, especially now that so much is done electronically? By way of explanation, the Times mentions only FDIC insurance premiums and the cost of staffing branches. But FDIC premiums are just over a dime per $100 of deposits. If a customer deposits $1,000, it costs the bank about a buck.

Branch operating costs are more believable. Real estate and salaries are not cheap. For instance, I wandered into my own bank the other day--a spacious office in high-priced midtown Manhattan. As usual, there was no line for the teller. I counted eight employees in the building and only one other customer. You can't run a business that way unless the customers pay a lot of money.

Well then, why not just close some branches? There are some 700 branch banks in Manhattan, more than ten times the number of post offices. Nationwide, there are almost 100,000, four times as many as existed in 1970 before we had ATMs or electronic banking. Who needs so many branches? Leave us customers a few ATMs, and on the rare occasion that we need a human teller, we'll go the extra distance to central branch.

Only that's not how it works. See, those fancy branches all over town are not actually there for our convenience. Or rather, they are there for our convenience exactly once: when we sign up. After that, the bank never really wants to see us again, unless we sign up for additional products.

Have you ever paid attention to the layout of your bank? The teller window and ATMs usually occupy a relatively small proportion of the space. The rest of the room is filled with the desks of various assistant branch managers, customer service agents, financial advisors, and so on. They are not there to serve you. They are there to sell you.

That's why you rarely see an ATM owned by a major bank standing on its own. An ATM can serve you almost as well as a human teller, but it's not very good at selling you financial products.

Yet the New York Times said that those financial products aren't profitable. So why would retail banks spend so much to sell consumers money-losing products?

Because, of course, the products aren't money-losing. Retail banking has been extremely lucrative for a very long time. It has been so lucrative that banks have opened branch after branch at considerable expense in order to compete for customers. If consumer banking has suddenly become unprofitable, it is only because the reduced revenues no longer justify the immense sales and marketing infrastructure of the branch banks. And if the banks are now looking for new ways to charge customers, it is not because their business is truly unsustainable but because they are too accustomed to the huge margins that the sector formerly provided through hidden fees.

The good news is that with a more transparent marketplace, the profit margins will remain moderate. As Bank of America in its hubris recently discovered when it attempted to overcharge account holders for debit cards, customers will simply take their business elsewhere. The cheaper banks without so many fancy branches--some without any branches at all--will happily take customers without the extra fees.

It's only hard out there for a bank that can't kick the habit.