Banks Ready with "Bag of Tricks" for Financial "Reform"

Aug. 26, 2010 - PRLog -- By David Caploe PhD, Chief Political Economist, EconomyWatch.com

As consistent readers of this site are well aware, we are not huge fans of the so-called “reform” of the US finance sector

authored by President Obama, and barely squeaking through the Senate, which has pretty much lost whatever prestige it may have once had.

We’ve detailed what we saw as unclear and problematic in what the legislation actually does contain,

and were shocked by its avoidance of the two major issues that ANY “reform” should have confronted:

the whole issue of “too big to fail” [ TBTF ] banks AND its wimpy stance on the STILL unexploded “weapons of mass financial destruction,”

the DERIVATIVES that have already caused so much, and will wreak even more, horrific damage in the future.

We characterized it as a jobs bill for lobbyists even before it passed,

and then, once we got a glimpse of its more than 2000 pages,

noted how many of those lobbyists are ex-regulators,

hired explicitly for their already existing “working relations” with their ex-colleagues in the regulatory agencies,

who have been given immense power as a result of this so-called “reform.”

So to us it’s hardly surprising to see how the banks themselves have been preparing for months, if not years,

to deal post-legislation with whatever they couldn’t kill pre-legislation.

And, as usual, they seem to be way ahead of the politicians – certainly not states –men or –women – in Washington.

Indeed, before the ink was dry on this massive tome of mandated regulations and studies that nevertheless evades most of the key issues,

after spending many millions of dollars to lobby against it, bankers are now turning to Plan B:

adapting to the rules and turning them to their advantage – a practice at which we’ve seen how well they excel.

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 SUPPOSEDLY trade derivatives in the daylight of closely regulated clearinghouses,

rather than in murky over-the-counter markets that we feel, frankly,

given the gigantic loopholes in this “legislation”,

are going to continue, if not necessarily on the same scale as before,

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 were without question the principal cause of the financial crisis.

And you think we’re being too cynical ;-) ???

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.

Well, at least they’re honest about that.

“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.

“Over time, it will all be repriced into the business.”

Indeed, Jamie, that it will.

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.

Have you noticed, by the way, how in so-called business journalism, there are always “analysts,”

just as when it comes to macro- issues, there are always “some economists” ???

These little media tricks all make it sounds so, oh, I don’t know, respectable –

when, as Black September 2008 and its ensuing revelations like Repo 105 made clear, it’s anything BUT.

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 has already had extensive meetings on strategies re how to adapt.

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 the bank would find new sources of revenue to plug that gap.

No doubt.

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,

charge 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 the eve of the Senate vote.

The catch – or should we say catch/es ???

To avoid any charges, customers must

·        forgo 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 ...

To read more at http://www.economywatch.com’, go to: http://www.economywatch.com/economy-business-and-finance-...

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