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Thursday, November 10, 2011

Bank Fees

I like conspiracy theories. Sometimes they are just entertaining, sometimes they offer a surprisingly perceptive explanation of what the hell just happened. So, without further ado, here's my theory on the great bank fee imbroglio.

First, a basic explanation of how banks work. Banks make money by making loans. They get the money that they lend out from some great pie-in-sky outfit called the Fed. The Fed lends them the money at some rate that they pulled out of a hat. However, they will not just lend a bank as much money as they want. The Fed insists that the bank have some collateral, some actual cash on hand. You know, to keep up appearances, so they don't look like complete shysters. So the bank takes in a dollar in deposits from you or me or grandma, uses that as their good faith token, then borrows 5 or 10 or however many dollars the Fed will lend them, then lends that money out to businesses (mostly), who pay the bank interest. The bank uses the interest they receive to pay for their fancy building with the marble floors and gilded lilies, the exorbitant bonuses that go to their executives, the pitiful salaries for the tellers, and lastly to pay you and me and grandma some negligible interest on that token deposit on which this whole elaborate contraption is based.

But now times are tough. Banks are having a hard time finding customers who look like they might actually be able to repay their loans. So they aren't lending out so much money, which means they don't need to borrow as much from the Fed, so they don't need as much collateral in the form of deposits. Banks don't really want customers. They are a nuisance. They come into the actual building, take up space, and take up teller's time with their niggling little requests. The only reason they put up with customers is so they can get those deposits. But now they don't need as much in the way of deposits, so they don't need so many customers, so they came up with this scheme to drive them away. First by charging fees for things that used to be free, and second by goading / hiring some rabble rousers to make a big stink about it. The whole point is to drive away small, nit-picky customers, the ones who are liable to cost them more money than they are worth.

The only problem with this theory is that all those bank customers are moving to Credit Unions who seem to be glad to have them. I really don't have an explanation for why Credit Unions would want all these annoying customers, other than maybe they can use a big influx of deposits.

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