Friday, January 14, 2011

Some Banks Now Too Big for Us


(From the January 13, 2011 edition of the Grand Haven Tribune)

Last year’s economic news included stories about large banks being bailed out by taxpayers. Most Americans are not financial experts, but the phrase “too big too fail” entered our vocabulary as we watched huge banks getting cash from the government. Pinstriped big city boys who work with hedge funds getting a hand from the hard earned tax dollars of blue collar workers who trim hedges.
           
The predictable outrage that ensued all across the country led to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The legislation was co-authored by senators Chris Dodd and Barney Frank, who have been the chairs of the senate and house banking committees from 2006 til the recent election changed committee chairs. Dodd and Frank meant well in their legislation, which seeks to ensure that consumers get clear information about financial products such as mortgages and credit card applications, and also puts an end to taxpayer bailout of banks. But it’s hard to be too confident in their reform since these two also assured Americans that Fannie Mae and Freddie Mac, the government mortgage and financial institutions, were “financially sound” right before their collapse.
            
Also, while federal laws often have good intentions, there are almost always unintended consequences. So while the Dodd-Frank Act seeks to eliminate “hidden” fees for consumers, it did not eliminate or restrict fees. In fact, the other aspects of the act that add more regulations on banks has led to an increase in banking fees for everyday consumers, the very taxpayers who only recently bailed out these banks.
           
I noticed this recently while going through the mail. There certainly is more transparency from banks. The information about new fees coming to our accounts was in bold. But there are new fees coming, and the ways to avoid the fees are increasingly challenging to everyday consumers.
            
My wife and I have been with the same bank since we were old enough to have jobs and accounts. The bank changed its name no fewer than four times in the past two decades. But we stuck with them. Given the recent changes, however, w are now in the process of changing banks.
            
The bank we are currently with received $25 billion in bailout money. In the third quarter of last year, they had a 23% increase in profit, pulling in $4.42 billion, or $1.01 per share. Their 4th quarter profits rose 47%. They still have challenges, such as lost revenue on defaulted mortgages and loans and regulations on what had been profitable investment banking practices. But they are still the number two bank in the country in asset size.
            
But as it turns out, being big in banking is not an asset or a consumer appeal any more. The law won’t let them be “too big too fail.” But on their own they have become too big for us. For several years now, I have grimaced when looking at my bank statement. The balance seems large to me, but the corresponding interest earned has been a joke. All that money sitting there for them to invest and I can only get a few cents. I understand the market is challenging right now. But banks are not for investment any more. In fact, banks are primarily for the security of keeping money in a safe place and the convenience of being able to write checks or pay bills online. Other than that, cash under the mattress looks like a better option.
            
Recently, the mattress has looked even more appealing. The letters we received from out bank outlines new monthly fees unless you keep a relatively high minimum balance or regularly use other banking services. This means you have a lot of money sitting there just to avoid being charged a fee that is 100 times more than the interest your money earns. Or you get penalized for not using the bank’s services. So many people of average means are faced with having assets that are not “liquid.” Other people who live paycheck to paycheck are being priced out of the banking system altogether. They’ll be forced to cash advance and check cashing businesses for loan and bill payment needs, where they will face additional fees.
            
Fortunately, there is another bank in town that has better options. Their literature seems to speak more to actual banking customers. There are lower minimums, better rates, lower fees and better options to avoid the fees. We’re moving our accounts to them. They are a smaller bank. That’s a big deal.

(Addendum--when we went to move our accounts, we got a small town touch at our big bank. So we did keep two accounts at the big bank, and moved  the others to the smaller bank. Maybe the local bankers can tell the corporate chiefs in the big city what actual customers think).