Like with the Netflix-Qwikster debacle, depositors are starting to fight back against the fee-happy megabanks by divesting in favor of more honest institutions and credit unions. At least Netflix got humble (after seeing their stock get owned) and is trying to make it up to customers, but banks don't give a crap. Problem is, deregulation has created financial behemoths whose revenue streams don't really depend on small-potatoes depositors and consumer loans anymore. They're investment banks and brokerage houses now, and don't really need our money to make money (assuming they survive the toxic assets mess and DoJ probes). Actually grandma depositor is a nightmare customer for banks. Her account has a paltry $5K, she doesn't trade stocks, and she eats up customer service resources by calling and visiting each week. If they can't bleed her with shady card, overdraft, and other account fees, then what's her use to them?
This could also possibly explain why banks are so recalcitrant to modify mortgages or issue new loans, despite collectively sitting on $1T of cash. As M's link showed, banks can make more money (with less headache) by loaning gov't $ back to them, which to me looks a lot like arbitrage at the expense of the US taxpayer. For home loans, banks are getting investigated and fined for not following foreclosure protocol and kicking people out too fast. Obama urged banks to restructure loans, but no incentives were in place so the banks mostly did nothing. Because US housing is suffering from an over-supply of vacant homes, banks are preferring to demolish them (even paying out their $ to subcontractors to do it).
http://www.inquisitr.com/
I find this strange because they're taking a loss on homes when they could still be earning modest interest by keeping the customer in it. Banks aren't realtors, and I guess they don't want to deal with the paperwork and pains of maintaining/fixing up properties. So why not keep a family under the roof? Unless they're broke and jobless, something could be worked out. But instead they chose the foreclosure path, which is terribly traumatic on the mortgage holder and community, and costly to banks. But I guess they don't care since home loans are not a big chunk of profits anymore. Some Bay Area community and religious groups are appalled at this (they have spent countless hours trying to negotiate with banks on behalf of distressed homeowners), so now they're protesting with their wallets and closing their million-dollar BofA/WF accounts in favor of local CUs. But unfortunately that is a drop in the bucket to them. Though if more of us do it, it will start to make a difference.
The BofA debit card fees issue is interesting. I think Dick Durbin sponsored a bill to cap debit card transaction fees on retailers to 21 cents, down from the previous 44 cents. Retailers were complaining about lagging sales, as they pass these fees onto consumers in the form of higher prices. Depending on how you define and amortize costs, a debit card transaction costs BofA 5-26 cents. So assuming the truth is at the median of 16 cents, their profit margin was almost 300% pre-legislation, and is now still a healthy 31%. So all their pissing and moaning about losing $2B in revenues due to this law is probably bogus. Say it was true; is the $5 debit card monthly fee justified? If many of BofA's 57M consumer/small-biz accounts use debit cards and incur the fee, that would net them ~$2.5B! So they're not only recouping the dubious $2B in "losses", but coming out ahead! Like I said, for every shady revenue stream we close, another one springs up, and may be worse. It will never end, and we're always playing catch up. But I wonder if we'll see lower prices from retailers now that they're saving about half on debit card fees. I have my doubts, but it is a volume-sales industry with super-thin margins. They need us to buy more.
We are partly to blame for all of this. Shareholders are putting so much pressure on public firms to show growth and good returns that the execs almost have no choice but to go all-out on short term profit taking. It's partly their greed, but also partly job security and competition. Of course institutional investors like pensions and hedge funds are the biggest influences. I don't think me with my 200 shares of BofA (what a crappy decision on my part in 2005) are going to change corporate behavior. But if we want firms to be less greedy, we have to start being less greedy ourselves by accepting lower rates of return.
