...it doesn’t make sense to be the customer of a small-enough-to-fail institution. This doesn’t apply to small depositors at retail banks, of course, who are federally insured. But for institutional clients, whose funds are uninsured, the moral-hazard trade here is clear...[explained at the link]Via The Dish.
And the big banks don’t particularly want all those retail-deposit funds — they’re getting precious little interest on them, and they come with all manner of expensive obligations to mail out statements and provide smiling service at teller windows and generally do the whole customer-service thing, which as we all know big banks are very bad at. Historically, they’ve done what they have to do on that front because they’ve been able to extract all manner of overdraft fees and interchange fees and the like, but that fee income is shrinking now, thanks to Dodd-Frank, and the fact is that millions of small bank accounts are actually unprofitable now for the big banks, and those banks won’t shed many tears if those customers go off to a credit union instead...
10 December 2011
"Big banks don't want your money"
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If that is so, why do they advertise? Because people tend to apply for loans where they bank?
ReplyDeleteExactly. They may not make much money on the basic checking accounts, but loans, credit card debt, mortgages, and the like do bring in a lot of money. If they were really losing money on these customers, they would have tossed them out on the street already.
ReplyDeleteMy credit union not only doesn't charge fees on their checking accounts, they pay us interest. Maybe only $5/year/thousand dollars in the account, but they are indeed making money from our account and providing good customer service while they're at it. If the big banks can't do that, they're really doing it wrong.
Kill a bank, join a credit union! (And don't forget to move your mortgage and loans over while you're at it.)
I think the point was not so much to punish the big banks, but to benefit credit unions and smaller commercial banks which have a business model that profits from old chool banking.
ReplyDeleteBanks may not want to deal with small investors, but they almost certainly do want their money.
ReplyDeleteEven if the individual accounts are not profitable to them, the balances count toward how much they can borrow (i.e. they have a leverage limit such that they can only borrow, for instance, 10 dollars for every 1 dollar they hold).
And as we have seen they LOVE to leverage the hell out of themselves.
What utter non-sense! Of course they want your money. Who in their right mind wouldn't want to get money for 3/10 to 5/10 of a percent and buy treasuries yielding 2-4% or, unbeknownst to most investors, retirees and bank customers, re-hypothecate customer funds, that is, buy European sovereign debt or derivatives like MF global did.
ReplyDeleteWhy does everyone think there is so much concern about the Euro debt situation? Just wait to see what happens to the U.S. banking system and our currency when that house of cards shakes. In the meantime, just as with MF global and Lehman, they make the gains and we get $crewed, only next time it will be a doozy. I will also point out that they actually tried to prevent people from closing their accounts. If they didn't want our funds then they sure faked it well.
A bank run starts with a trickle.