Why the "Financial Regulations" bill is a failure for consumers.

[lothar]

Banks Seek to Keep Profits as New Oversight Rules Loom

The ink is not even dry on the new rules for Wall Street, and already, the bankers are a step ahead of everyone else.
In ways large and small, the broad overhaul of the nation’s financial regulatory system that was approved by Congress on Thursday will eat into the profits of the nation’s banks.
So after spending many millions of dollars to lobby against the legislation, bankers are now turning to Plan B: Adapting to the rules and turning them to their advantage.

Faced with new limits on fees associated with debit cards, for instance, Bank of America, Wells Fargo and others are imposing fees on checking accounts. Compelled to trade derivatives in the daylight of closely regulated clearinghouses, rather than in murky over-the-counter markets, titans like J.P. Morgan Investment Bank and Goldman Sachs are building up their derivatives brokerage operations. Their goal is to make up any lost profits — and perhaps make even more money than before — by becoming matchmakers in the vast market for these instruments, which critics say were a principal cause of the financial crisis.

Even when it comes to what is perhaps the biggest new rule — barring banks from making bets with their own money — banks have found what they think is a solution: allowing some traders to continue making those wagers, as long as they also work with clients.
Banking chiefs concede they intend to pass many of the costs associated with the bill to their customers. The legislation, which is expected to be signed into law by President Obama next week, is intended to address the causes of the 2008 economic crisis and curb the most risky behavior on Wall Street.

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” said Jamie Dimon, the chairman and chief executive of JPMorgan Chase, after his bank reported a $4.8 billion profit for the second quarter on Thursday. “Over time, it will all be repriced into the business.”

Short term, the changes imposed by this legislation and other recent reforms could cut profits for the banking industry by as much as 11 percent, analysts estimate. Long term, Wall Street will be able to plug at least part of that hole by doing what it does best: inventing products that take advantage of the new regulations.
At Morgan Stanley, the board will hear strategies on how to adapt when it meets next week. Citigroup has already shed risky investment units forbidden by the bill, freeing up cash it can quickly deploy into new areas. At J.P. Morgan, 90 project teams are meeting daily to review the rules and retool businesses accordingly.
“We’ve been gearing up for this like a merger,” Mr. Dimon said in a recent interview. He said new restrictions on credit and debit card fees, as well as derivatives, could cost his bank at least several hundred million dollars annually but added that the bank would find new sources of revenue to plug that gap.
There are signs that is already happening across the industry. Free checking, a banking mainstay of the last decade, could soon go the way of free toasters for new account holders. Banks are already moving to make up the revenue they will lose on lower overdraft and debit card transaction charges by raising fees on other services.

Banks like Wells Fargo, Regions Financial of Alabama and Fifth Third of Ohio, for instance, recently began charging new customers a monthly maintenance fee of $2 to $15 a month — as much as $180 a year — on the most basic accounts. Even TCF Financial of Minnesota, whose marketing mantra championed “totally free checking," started imposing fees this year in anticipation of the new rules.

To be sure, in many cases customers can escape the new checking account charges by maintaining a minimum balance or by using other banking services, like direct deposit for paychecks and signing up for a debit card.

Still, with checking account fees spreading, Bank of America rolled out a fee-free, bare-bones account on Wednesday, the eve of the Senate vote. The catch? To avoid any charges, customers must forego using tellers at their local branch, use only Bank of America cash machines, and opt to receive only online statements.
“You are going to see more of these targeted offers,” said David Owen, Bank of America’s payment product executive.
Fifth Third, for example, has added extra services to its basic checking account, like fraud alerts and brokerage discounts, but now tacks on a monthly maintenance fee. JPMorgan Chase is considering hiking annual fees for debit cards that offer rewards points, or scaling back how many they dole out.
“The rule of thumb is that it costs a bank between $150 and $350 a year” to maintain a checking account, said Aaron Fine, a partner at Oliver Wyman, a financial consultancy. If banks cannot recoup that money, he added, they may be forced to jettison unprofitable customers.

While commercial banks are expected to feel the effects first, investment banks are bracing for more fundamental changes in lucrative businesses like derivatives trading.
In the past, banks would sell complex derivative contracts directly to buyers, pocketing hefty fees but absorbing considerable risk as well. Now, most derivatives will be traded through clearinghouses, which will bear the risk, leaving banks to simply broker the transaction.
The shift to clearinghouses will turn derivatives trading from a highly profitable niche to a more volume-based business, in which banks will have to compete on customer service and price. As a result, banks have already spent tens of millions of dollars to rewire their computer systems so they are more efficient in the leaner times ahead.

Even as bank lobbyists fought successfully to dilute the most draconian parts of the new derivatives rules, these same institutions quietly accelerated plans to adapt to whatever rules would eventually pass.
At J.P. Morgan Investment Bank, more than 100 people, from traders to risk managers and computer programmers, have been busy for months retooling the bank’s giant derivatives business. Citigroup has peeled off several dozen employees on similar projects, and may form a global clearing services business unit.
Although the derivative rules will not go into effect until 2011, major banks have been pitching these new clearing services to hedge funds and other potential clients since late 2009.
“If you are in the business of electronic trading, inevitably this is getting brought up in conversation and priced into your clearing deal,” Donald Motschwiller, managing partner and co-president of First New York Securities.
Just as the derivatives business is likely to mutate — but hardly disappear — proprietary trading is unlikely to disappear anytime soon.
In that case, banks like Citigroup and others have started to dismantle stand-alone desks that use the bank’s own money to make speculative bets, shifting those traders to desks that work on behalf of clients. But those traders will still be able to make occasional bets on the market, even if their primary responsibility is to serve clients.

http://finance.yahoo.com/news/Banks...1.html?x=0&sec=topStories&pos=3&asset=&ccode=
Source:

Not that I care much...
1.) Poor people will be dropped by banks. Banks will tell poor people "pay the fees" or go to a check cashing spot and deal with the "real" loan sharks across the street which face little to no regulations. This will affect mostly poor, elderly and uninformed people. Online banking? how many people use that? Most people don't especially age 50+...
2.) Banks will invent/build their own clearing houses to broker derivatives. They are not allowed to own them or keep a part of them but they are now allowed to sell them to their clients and consumers? This essentially transfers risk from banks to clients/consumers. People say the derivatives market ballooned from $100 billion to $600 trillion in a decade. How will the transformation of the derivatives business model from one based on "profit/risk" to one based on "volume"? I have no idea, but since it's based on volume now all the banks will push "buy and sell as much as you can for the clients" similar to how personal stock brokers make money from commissions.

 

[lothar]

End Is Seen to Free Checking

Bank of America Corp. (NYSE: BAC - News) and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.

Free checking accounts, which have been widely available for more than a decade, have been a boon to middle-class consumers and attracted low-income customers to the banking system for the first time.

Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don't generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts.

"If you put $1,000 in a checking account and don't do anything with it, it will be hard to get that for free," says Sherief Meleis, a managing director at Novantas LLC, a consulting firm that advises banks.

Some consumer advocates warn the new fees will whack consumers who now manage their bank accounts to avoid such charges. "Just because you made a lot of money on overdraft fees doesn't mean you deserve the income and doesn't mean you need the income," said Ed Mierzwinski, director of the consumer program for the U.S. Public Interest Research Group, a liberal lobbying group, in Washington.

The transformation of checking accounts comes at a time when banks are bouncing back from the steepest financial losses in a generation and are facing new regulations. To accelerate that recovery and recoup losses from new banking rules, financial institutions are increasingly leaning on customers who don't now generate enough revenue for the bank.

More than half of all checking accounts are currently unprofitable, according to a report issued last month by Celent, a unit of Marsh & McLennan Cos. It costs most banks between $250 and $300 a year to maintain one of the roughly 200 million checking accounts, according to industry estimates.

The situation is especially critical for Charlotte, N.C.-based Bank of America, which stands to lose more revenue than most other big banks because it is in the process of dismantling its checking-overdraft program in the face of new restrictions. Starting this summer, banks must receive customer permission before they can charge for overdrafts. But Bank of America has decided to drop most of its program altogether. The nation's largest bank, as measured by assets, said largely because of recent changes to its overdraft policy, it will forgo $600 million in revenue this year.

To generate new revenue, Bank of America is quietly testing new pricing models throughout the U.S., with most changes expected in early 2011. Executives have ruled out a flat monthly fee for all customers and are developing a tiered structure that encourages customers to increase banking activity or use other services to avoid future charges.

Bank of America customers who only want a low-volume checking account will likely be asked to pay for it. Fees will likely be waived for customers who keep their balances high, use bank credit cards or tap its investment advisers. Bank executives declined to discuss specifics of the plan saying it is still being formulated.

"Customers will have a choice," Bank of America Chief Accounting Officer Neil Cotty told analysts in April, of "bringing more relationships to us or paying a maintenance fee."

Banks say they stand to lose billions of dollars in revenue from separate new restrictions on credit cards and overdraft transactions that were announced earlier this year. They could lose even more from legislation winding its way through Congress. The Senate version of the financial industry overhaul bill, currently being reconciled with the House version, contains an amendment that could limit fees banks charge to merchants for debit-card transactions.

Financial institutions warn that such a measure would trigger higher fees on basic banking products, as well as the loss of rewards programs that are tied to debit-card use. U.S. banks collected $9.4 billion in banking fees in the first quarter, representing 16.5% of all noninterest income, according to the Federal Deposit Insurance Corporation.

The new regulations could reduce the industry's service fee revenues by as much as 20%, according to Sandler O'Neill + Partners, an investment firm that specializes in the banking industry. Bank of America's service charges are 12% of revenues, excluding securities gains, and a 20% drop in such fees would mean a loss of $2.2 billion for the bank, according to Sandler O'Neill.

It isn't clear if new fees under consideration would completely make up for revenue that will be lost as a result of regulation. But banks aren't waiting to find out. "We're not sitting around to get caught off guard," Ed Barham, chief executive of Stellar One Corp., recently told investors. The Charlottesville, Va.-based bank, he said, is "driving other sources of revenue, of fee income at the retail side especially."

Fifth Third Bancorp, a large regional bank based in Cincinnati, dropped its free checking account late last year and now offers packages that bundle checking with other services, such as fraud alerts, debit rewards or brokerage discounts for fees of up to $15 a month. The fee can only be waived with a certain type of checking account.

TCF Financial Corp. (NYSE: TCB - News), a Wayzata, Minn., bank that used "totally free checking" as its slogan, eliminated its free checking account earlier this year and replaced it with an account that charges a monthly $9.95 maintenance fee. The bank will waive the fee if a customer keeps a certain minimum balance or has direct deposit. Banks typically didn't charge for checking in the 1970s, but began imposing fees in the early 1980s to offset higher interest rates they were paying on savings accounts. That changed in 1986 when TCF began promoting a free checking account. By the late 1990s, most banks had followed suit.

The offers of free checking without any minimum balance requirements attracted a new wave of low-income customers, who previously went to check-cashing stores. Some consumer advocates have warned that the elimination of free checking could drive some of those customers out of the banking system.

From the banks' perspective, though, many of those customers aren't profitable. The recent report from Celent suggested that banks can look beyond checking accounts to impose other fees. The report warned, however, that banks need to be careful not to alienate good customers.

http://finance.yahoo.com/banking-bu.../end-to-free-checking?mod=bb-checking_savings
Source:

 

[lothar]

Millions of Americans Will Lose Access to Banks: Bove

Financial regulation reforms, now in the last stages before becoming law, will mean that millions of people will lose access to banking services, Dick Bove, banking analyst at Rochdale Securities, told CNBC Thursday.

Congress will vote later Thursday on the Wall Street reform bill, which is the biggest attempt to revamp financial regulations since the Great Depression and aims to tighten regulation to avoid a new crisis like the one that swept through the world economy between 2007 and 2009.

Under the bill there will be new limits on risky trading by large banks and many of them will have to hoard more capital to prepare for times of crisis to avoid being bailed out by taxpayers.

A new consumer protection authority will oversee financial services companies such as mortgage brokers or student lenders and regulators will be able to dismantle troubled banks and impose leverage limits on the banks deemed too big to fail.

All this will mean that banks will impose fees on existing consumers to try to make up for cash they need to store as capital or spend on levies, and consumers who cannot pay the fees will have to give up on banking services, Bove said.

He estimates that "at least 10 million people" will lose banking services in the US after the new financial regulations come into force, because "they just won't be profitable for banks and banks won't keep them."

http://www.cnbc.com/id/38259206


Bank of America Offers Account That's Free If You Don't Visit Teller Again

Bank of America Corp. has a novel way to lure more customers: Free checking accounts for folks who never again enter the bank.

The bank, the largest in the U.S. by assets, is introducing an account on Aug. 6 that won’t include a monthly fee or minimum balance requirement unless the customer wants to use a teller or receive a monthly statement through the mail, said David Owen, a senior vice president for checking and debit at the Charlotte, North Carolina-based company. Visiting a branch to make a deposit will trigger an $8.95 fee per month, he said.

Bank of America has tested the program in Georgia for eight months with a third of new customers selecting the account, Owen said in an interview yesterday. “It has had a much broader appeal than we initially thought,” he said.

Bank of America is looking for more ways to make money from consumer banking amid a U.S. regulatory overhaul, which ratings company DBRS Inc. estimated may cut $1.9 billion from the lender’s annual debit-card and credit-card revenue. The Senate may vote as soon as this week on a bill that also establishes a consumer financial protection agency.

Bank of America views the new account as different from the mid-1990s programs by First Chicago Corp. and other banks to levy $3 fees on people who dealt with tellers instead of automated teller machines. The banks later dropped the charges after criticism from customers

“This account is up to the customer and they can choose how they want to bank with us,” Owen said. “This is nothing like those early programs.”
The bank has about 18,000 ATMs, including about 13,800 that print images of deposited checks. Account holders who need to deposit coins or have service-related questions won’t be charged a monthly fee, Owen said.

http://www.bloomberg.com/news/2010-...t-s-free-if-you-don-t-visit-teller-again.html

 

[jackace]

The financial industry owns Washington Law makers and has them by the balls. Law makers want to appear tough on the financial industry reform, (for re-election reasons) but they will leave plenty of loop-holes for the industry to continue with business as usual.

 

[CADsortaGUY]

I just laugh at any/all who supported this power grab by the Feds. We keep telling you over and over that it's about power and it's not actually to help regular people but you keep supporting this sort of liberal/socialist BS time after time. When are you people going to wake up?

 

[jackace]

I just laugh at any/all who supported this power grab by the Feds. We keep telling you over and over that it's about power and it's not actually to help regular people but you keep supporting this sort of liberal/socialist BS time after time. When are you people going to wake up?

Unfortunately the Fed is all we have between us and the corporations who have proven don't have our or our counties best interests at heart. Not to mention the Fed has at least some accountability to the voters.

 

[boomerang]

I just laugh at any/all who supported this power grab by the Feds. We keep telling you over and over that it's about power and it's not actually to help regular people but you keep supporting this sort of liberal/socialist BS time after time. When are you people going to wake up?

They will when the jackbooted thugs rip them from their beds in the dead of night. Needless to say, it will be way too late to do anything about it then.

With no oversight of Fannie and Freddie included, this bill should have been raising red flags for everyone. That, and it's chief crafters being Dodd and Franks who are up to their necks in the financial misery we're in.

They're not going to wake up because anyone other than Bush and his appointees are our saviors. Excuse me while I puke.

 

[CADsortaGUY]

Unfortunately the Fed is all we have between us and the corporations who have proven don't have our or our counties best interests at heart. Not to mention the Fed has at least some accountability to the voters.

lol, and you don't see how the gov't has proven it doesn't have the country's best interested at heart? Good god man - wake up and see that those who are and have taken more power are even worse. Dodd and Frank have done as much if not more harm by pushing this sort of BS onto us. Sheesh.

 

[Double Trouble]

Anybody who didn't see this coming is either incredibly stupid or incredibly naive (or both). Banks are a business. Like every corporation, their goal is to maximize profits, by any (usually legal) means necessary. No matter what regulations or laws are passed, they will find the best way to increase their profits around the new framework..... as they should. That's part of being a successful business: adjust to whatever the environment throws your way and find ways to make more profits.

This entire bill was just a giant government power grab, there is absolutely nothing in there that will benefit the average person, yet millions of suckers once again fell for the pile of crap they were sold (health care bill sound familiar? )

 

[Patranus]

Unfortunately the Fed is all we have between us and the corporations who have proven don't have our or our counties best interests at heart. Not to mention the Fed has at least some accountability to the voters.

And corporations have some accountability to the consumers.
If you don't like a corporation STOP USING THEIR PRODUCT/SERVICE.

 

[Lemon law]

Its a ridiculously argument in MHO to say, if we take away one ability of the banks to gouge the consumer, the banks will simply gouge us in another area.

And the person with an iota of common sense realizes, its why you have to keep up with the banks, as as they try new ways to gouge us all, well we can outlaw that too. And sooner or later, if we close one loophole after another, the banks will run out of ways to legally gouge the consumer.

And gasp, the banks will have to earn an honest living like the rest of us.

As it is, the bankers can't be trusted with our money, its simply human nature, too many Bankers will try to use our money as they gamble our money in various gambling casinos. If they win, they pocket the profits as personal profits, if they lose, they come and demand the tax payers bail their ass out. With a deal that sweet, no wonder everyone in the financial industry was gambling money they did not own, and when it went sour, its took down the entire world economy.

Bankers simply can't be trusted, they must be regulated.

 

[ElFenix]

And corporations have some accountability to the consumers.
If you don't like a corporation STOP USING THEIR PRODUCT/SERVICE.

lots didn't use any of AIG's or lehman's products/services and yet they still fucked us all over.

 

[cubby1223]

Bankers simply can't be trusted, they must be regulated.

The regulators cannot be trusted either. Who will regulate the regulators?

 

[jackace]

lots didn't use any of AIG's or lehman's products/services and yet they still fucked us all over.

Yeah corporations have some accountability to their CUSTOMERS, but not all of us are customers of every corporation. At least with the government we all have a vote.

 

[lothar]

Its a ridiculously argument in MHO to say, if we take away one ability of the banks to gouge the consumer, the banks will simply gouge us in another area.

Why is that hard to believe? The CEO/Chairman(and an Obama supporter at that) of a top 5 bank said it himself.

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” said Jamie Dimon, the chairman and chief executive of JPMorgan Chase, after his bank reported a $4.8 billion profit for the second quarter on Thursday. “Over time, it will all be repriced into the business.”

Just like the stupid merchant fees regulation on credit/debit transactions in this bill.
Banks will raise their lost profits from elsewhere. Equally stupid is assuming your local Wal-Mart, CVS, Walgreens, Costco, and 7-Eleven would automatically reduce prices for consumers due to reduced merchant fees. They will pocket the difference.

 

[lothar]

And the person with an iota of common sense realizes, its why you have to keep up with the banks, as as they try new ways to gouge us all, well we can outlaw that too. And sooner or later, if we close one loophole after another, the banks will run out of ways to legally gouge the consumer.

The average person on Anandtech is more intelligent than John Q. Public.
Most people don't know anything about credit unions, and an equal amount use CC's that have zero rewards, charge annual fees, and they carry high interest balances with them.

Banks drop free checking accounts for unprofitable customers and stops offering new ones. I'd love to see how you can outlaw that. You can't force a bank to approve an account from an unprofitable applicant.

Banks will continue to invent financial "instruments" that bypass these new regulations and all the previous ones. Banks like Goldman will always be 1 step ahead of their regulators and 2 steps ahead of congress on the issue. Good luck with that.

 

[CADsortaGUY]

Yeah corporations have some accountability to their CUSTOMERS, but not all of us are customers of every corporation. At least with the government we all have a vote.

I don't have a vote on Dodd or Frank - yet they are the ones pushing this sort of disastrous power grab by the feds

 

[classy]

I just laugh at any/all who supported this power grab by the Feds. We keep telling you over and over that it's about power and it's not actually to help regular people but you keep supporting this sort of liberal/socialist BS time after time. When are you people going to wake up?

You complain about the bailout and failure of oversight. You complain about how the taxpayers have to foot outrageous interest and bank practices. So they try to address the issues and you still complain. No bill is perfect and this one will have a slew of changes over the years like so many others. But sooner or later instead of bitching, moaning, and sitting around with your thumb up your ass, you gotta get up and try to do something. The only true failure is the failure to do nothing. No one knows if this will be a failure or not until the facts and results are known, not conjecture or assumptions.

 

[theeedude]

We need even more regulation, this is not enough.

 

[Lemon law]

So Lothar comes back with, "
“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” said Jamie Dimon, the chairman and chief executive of JPMorgan Chase, after his bank reported a $4.8 billion profit for the second quarter on Thursday. “Over time, it will all be repriced into the business.”

In terms of the what would Jesus do question, we already know the answer to that question, Jesus threw the money changers out of the temple.

Its not that we have to trust the bankers, when we can simply replace that set of idiots with a set of bankers that understand that banking is a service economy.

We have bought the wall street set of lies hook line and sinker, that these idiots can create money out of thin air and they deserve to be overpaid beyond all reality. And then we wake up in 2008 and discover they can't create money out of thin air, are incredibly worthless greedy dumbfucks, and to top that, they not only want us taxpayers to bail out their gambling losses, they want their over inflated commissions in the gambling too.

Simply fire the dumb fucks, and replace them with honest folks. And if banking and wall street is too corrupt to reform, replace it with another system. Because we can't afford to let the old system to grow back.

 

[jackace]

I don't have a vote on Dodd or Frank - yet they are the ones pushing this sort of disastrous power grab by the feds

You have a vote to send your states own representatives to Washington to vote against anything Dodd and Frank propose.

 

[theeedude]

From my point of view, the more directly connected costs and charges are, the better.
If you are getting free checking but getting screwed on debit card fees, pathetic interest rates, and your taxes to bail out these banks when they take unnecessary risks, that's not all that great of a deal.

 

[jackace]

The average person on Anandtech is more intelligent than John Q. Public.
Most people don't know anything about credit unions, and an equal amount use CC's that have zero rewards, charge annual fees, and they carry high interest balances with them.

Banks drop free checking accounts for unprofitable customers and stops offering new ones. I'd love to see how you can outlaw that. You can't force a bank to approve an account from an unprofitable applicant.

Banks will continue to invent financial "instruments" that bypass these new regulations and all the previous ones. Banks like Goldman will always be 1 step ahead of their regulators and 2 steps ahead of congress on the issue. Good luck with that.

I saw a video on Yahoo finance a few months back, and the commentator said in order to regulate Wall St we should stop with all the guidelines and recommendations, and instead tell them exactly what they can and can't do. What Wall St can and can't do should be laid out in black and white so everyone involved knows what they are doing and with whom they are doing it. At this point with all the corruptions and outright Bull Shit coming from them I'm starting to agree with that line of thinking.

 

[Binarycow]

Didn't Mark say something about one can't worship two masters at once? It's ironical that the majority of Americans claims to be Christian and yet we're daily blatantly ignoring/ making a mockery out of an obvious truth. Hypocrisy are undoing us. A minority of people who are decent are fighting a losing battle holding back this tidal wave of greed, selfishness, and "out to screw your neighbors" attitude (many of us are living by) from consuming us and what do they get in return? They got laughed at and called stupid for not taking advantages of others. It's a fucking shame really.

 

[sandorski]

If these Regs prevent the repeat of the meltdown we're now recovering from, then they are Good. Pretty much the end of the discussion. Hopefully the Market will take care of these Banks turning around and simply Charging Customers more.