Monday, June 9, 2014

Cash Deposits Now Require Fee Charges at Some Banks

Staff Writer, R. Patrick Chapman
Banks / Finance / Glass-Steagall Act

It has begun. The crime of cash has manifested at Chase Bank. With bail-outs and now bail-ins, the brunt of sustaining the multinational banks lays at the feet of customers. 

No longer is banking profitable. The Durbin Amendment to the Dodd-Frank Act limits what fees can and cannot be levied leaving banks feeling the pinch.
The Durbin Amendment to the Dodd-Frank financial reform legislation capped debit card interchange fees for banks with assets of $10 billion. Credit card and prepaid card interchange fees were not regulated. The cap, which took effect on October 11, 2011, cut the average interchange fee for covered banks from $0.50 to $0.24 per transaction.
The cap reduced annual revenues from interchange fees by between $6 billion and $8 billion. Covered banks have recouped these losses in indirect ways. In particular, they have:

- Reduced the availability of fee-free current accounts. The total number of banks offering free current accounts fell by 50% between 2009 and 2013. In comparison, fee-free banking actually increased at banks not subject to the Durbin Amendment.
- More than doubled the minimum monthly holding required on fee-free current accounts between 2009 and 2012, from around $250 to over $750.
- Doubled average monthly fees on (non-free) current accounts between 2009 and 2013, from around $6 to more than $12.
- These fee increases and loss of access to free checking contributed to an increase in the unbanked population of approximately 1 million people, mainly among low-income families.
- Consumers have shifted their payment usage from debit cards to credit and prepaid cards, which were not subjected to price controls.

Most large retailers have seen significant cost reductions as a result of the Durbin Amendment, yet to date there is no evidence that those cost savings have been passed-through to consumers. Interchange fees have increased for merchants that make small-ticket transactions, as networks have eliminated discounts that they previously received, and smaller merchants have not seen any reduction in their merchant discount rates. Thus, while consumers have seen large and immediate increases in the cost of bank accounts, to date there is no evidence of reduced prices at the pump or checkout. We estimate that as a result of the Durbin Amendment, there will be a transfer of $1 billion to $3 billion annually from low-income households to large retailers and their shareholders, which have been the primary beneficiaries of the Durbin Amendment to date.
Instead of creating revenue with the large accounts of wealthier clients, Chase has opted to charge anyone for depositing cash. The banks want to stop the fear that bank runs are near due to the recurrent recession and coming economic collapse of the PetroDollar.

It's okay for banks to trash the economies of the world, deepen financial uncertainty, create unstable job markets, and monetize debt based derivatives, but do not dare control how banks rip off customers with fees.

Perhaps if Congress reinstituted the Glass-Steagall Act that banks could be broken up into their regulatory sectors, banking/finance versus speculation/gambling, and then banking with accounts could become profitable again. 
As a result of the bank closings [of 1933] and the already devastated economy, public confidence in the U.S. financial structure was low. In order to restore the banking public's confidence that banks would follow reasonable banking practices, Congress created the Glass-Steagall Act. The act forced a separation of commercial and investment banks by preventing commercial banks from underwriting securities, with the exception of U.S. Treasury and federal agency securities, and municipal and state general-obligation securities. Likewise, investment banks may not engage in the business of receiving deposits.

Investment banking consists mostly of securities underwriting and related activities; making a market in securities; and setting up corporate mergers, acquisitions, and restructuring. Investment banking also includes services provided by brokers or dealers in transactions in the secondary market.

The Glass-Steagall Act restored public confidence in banking practices during the Great Depression. However, many historians believe that the commercial bank securities practices of the time had little actual effect on the already devastated economy and were not a major contributor to the Depression. Some legislators and bank reformers argued that the act was never necessary, or that it had become outdated and should be repealed.
And Americans saw how outdated the Glass-Steagall Act when the law was repealed and the economic crash of 2008 occurred. Of course big business can regulate itself for the good of the people. Not.

Just like in the past where once bank accounts, free ones included and depositing cash, was after all how the banks became Too Big To Fail, so how is it that going back to such a rudimentary system is now unprofitable in this private sector?

Sounds like the banks do not want to abide by the rules or the rule of law. Another bubble is about to burst taking with it the rest of the economy. When will Congress learn that large corporations must be regulated? At this point in corporate greed and lawlessness, never. Congress is lobbied too heavily to do the right thing.

So keep your bounty of pennies in your mattresses. 

It's probably safer there anyway.

Source: Occupy Corporatism, SSRN, The  NY Times