As financial institutions nationwide try to right themselves in the wake of the credit crisis, two local banks are grappling for the hearts, minds, and wallets of New Haven residents.

Bucking the national trend of increasing fees, the New Haven-based NewAlliance Bank offers no-fee checking accounts, which it has begun to promote via a vigorous media blitz. Meanwhile, the city’s branch of Waterbury-based Webster Bank announced in November that it would eliminate “free checking” and charge a monthly fee to certain accounts, but has also lowered overdraft fees below its NewAlliance rival. The two banks, which are located just around the corner from each other on Church and Elm Streets, are acting out a local version of the complex, neck-and-neck and ever-shifting race banks across the country face to bring in revenue while adapting to new government regulation.

In the downtown New Haven financial arena, banks are adjusting a range of different fees, both increases and decreases, to attract local customers.

[ydn-legacy-photo-inline id=”5426″ ]

[ydn-legacy-photo-inline id=”5427″ ]

“It seemed like the right time to re-look at all of our products,” said Ed Steadham, Webster’s Vice President for Public Affairs, referring to the Federal Reserve rules enacted this year which offer customers the choice of whether to receive protection from overdraft fees. Banks charge customers overdraft fees when they spend more with their debit card than the balance in their account.

Though Webster has lowered its overdraft fee to $20, beating out NewAlliance’s $33 rate, under the bank’s new payment structure, clients in its Value Checking program will be charged $8.95 for every month in which they do not maintain a balance of at least $1000 or make ten transactions with their debit card. The fee is hardly unique among financial institutions — Citizens Bank, which operates two branches in New Haven, recently decided to implement similar requirements for members of their basic checking services.

Around the corner, NewAlliance hopes that its free checking account will appeal to Webster customers frustrated with the new fee.

“Free checking’s not extinct,” say new advertisements from the bank, which feature a smiling orange dinosaur to emphasize the point.

Although both banks are advertising the appeal of their fee changes, whether their efforts will work remains unclear.

Professor James Lattin of Stanford University, who studies consumer behavior in the financial industry, said attracting new customers is difficult.

NewAlliance’s message may appeal to first time customers, but it is far more difficult to effect a major shift in clients from one institution to another, Lattin said.

“Even when people are dissatisfied [with their bank], they tend not to change,” he said. Lattin added that checking accounts rarely produce much revenue for a bank in any event, and are primarily offered to entice consumers into purchasing more profitable products later on, like credit cards and home loans.

Carol Kaplan, the Senior Director of Public Relations at the American Bankers Association, said the tactics being used by Webster and NewAlliance are not surprising, given the national trends she has seen.

“You are going to see a period of enormous innovation and creativity as banks look to define revenue streams,” Kaplan said.

Mark Gibson, NewAlliance’s Chief Marketing Officer, said that he is confident the advertising will attract customers from banks like Webster that have implemented new fees, calling the campaign’s initial results “promising.”

Whereas overdraft fees once provided banks with a steady stream of revenue — $38 billion in 2009 — many customers are now choosing to have their transactions be declined if they do not have sufficient funds rather than face a hefty overdraft charge according data reported by the Financial Times from Moebs Services, a research company.

But the new industry fees are not limited to checking accounts, as banks continue to find ways to recoup the financial losses they say stem from new government regulations, Kaplan said.

J.P. Morgan Chase, for example, is increasing the minimum monthly payments for some of its credit card holders. And Bank of America, which operates the ATMs on the Yale campus, has begun to charge clients $12 if a check they deposit is rejected.

The banks’ new charges do not generally apply to their student checking accounts, which are kept purposely inexpensive so as to attract young customers, including students.

Webster and NewAlliance are the first- and third-largest banks based in Connecticut, respectively.