“Inherent right to” free banking
October 7, 2011
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I was reading the Wall Street Journal this morning, as I do most mornings (ahh the benefits of underemployment). Anyhow, I was reading a short little article about Timothy Geithner correcting statements President Obama made about what banks were and weren’t allowed to do. Obama’s direct quote was, “Banks don’t have some inherent right just to, you know, get a certain amount of profit.” This was in reference to Bank of America’s decision to charge $5 to any person using their debit cards to make purchases.
First of all, I am glad that Geithner has clarified that the government will not decide how much a bank can profit. It is just my opinion, but I think it would be a scary sign of how much populist opinion could control our government. Banks and Bankers are not all bad, but they do want to make a profit. That is their job. These are not credit unions or not-for-profit banks. And, the idea that the government should impose limits on what some entity can or can’t earn is a scary draconian proposition.
Second, the thing that I find most curious about this is just how free our banking really is in this country. If you are student, you can almost certainly get free checking. If you have some kind of job with direct deposit, you don’t pay anything for banking (at least at BofA). Yes, in the US, we have to pay over draft fees. It is a slap on the wrist and a small immediate loan that the bank gives you so you don’t look like a fool at the checkout counter. What an amazing time we time we live in? We can get money, in a moment’s notice, when we don’t have any! No it’s not free, but it shouldn’t be. Now, individuals will have to pay $60 a year for a service that allows them to have at their disposal all of their money without having to go to the ATM. It can be carried in a neat little card, that fits into a wallet and can be used everywhere from restaurants, to our little town market here in Boise. I have literally bought fruit on the side of the road with a debit card. Unbelievable! And now, I am being asked to pay a little for that service. Yeah I am bummed. I don’t want to give up $60 a year. But, this is not so bad. Go with me for a moment. When I lived in France, I had to pay 7 euro/month just to bank at Societe Generale. I had never had to pay anything to bank until I went to Europe. This is the norm there. Everyone pays a little to bank.*
*On a semi-related note, everyone pays with their debit cards, never credit cards. Most people are fully aware of exactly how much money they have at a given time and spend accordingly. In 2006, less than 50% even owned real credit cards. Now, I am sure it depends on the bank, but I didn’t have overdraft protection, so my card was just declined. I had no access to money if I didn’t have it, which might be in the long run a better system.
Finally, as my insider industry source has told me, this amount is probably what was lost because of a certain addition to the Dodd-Frank bill that passed in Congress during the height of the populist outrage against banks. In the bill, banks were limited in what they could charge companies who used the service of charging at the counter. So, the companies were protected and it has come out in consumer fees. Tit for tat. It was always going to happen my source tells me. And NONE, of any of this, has anything to do with sub-prime lending, credit default swaps, or middle-men taking huge commissions on finding buyers and sellers for this CDOs, or any of the other financial innovations that helped plunge our economy into recession in 2008.
So, we pay $60 a year to use our debit cards and now our President has made it a national issue. What a crazy world we live in.