No Confidence

I wasn't planning on writing this soon but the banker in me just had to bring up the new banking trend. Some of the biggest US banks began to inform their clients today on a new fee. In the past, if you had millions to deposit you looked for the bank that paid the highest interest rate, right? No more. Instead the new trend is to charge the customer a fee to deposit their money at the bank!

That's right, the rich, businesses or anyone wanting to deposit millions will have to pay for the privilege of banking at one of the bigger banks.





You thought the rediculously small interest paid on savings, money market accounts or CDs was bad - now customers and businesses have to pay the banks to hold their millions! You're better off putting it under your mattress.

I hate to admit this, but as a former banking consultant I can understand why banks are doing this. Basically there is too much cash floating around as investors are getting out of the stock market and real estate. In fact money is so prevalent that the Federal Reserve is charging the few banks that need to borrow money an interest rate of 0%. Yup, it is free to borrow but that isn't the problem, the problem is too much money.

Not to get too technical but banks have to balance out their Assets which are loans and cash on hand vs. their Liabilities of deposits and stocks.







Too much deposits and they can't make enough loans to balance it out. Businesses today are afraid to get new loans as the economy is uncertain and they are afraid of the future impact of Obamacare. There are few mortgages as no one is buying houses and the few customers who try for a loan are turned down as banks are being very strict. So banks can't turn the big deposits into loans today.

In today's economy, banks interest margin (the rates they collect on loans minus the rate they pay out on deposits)has been smaller and smaller. And now they can't even turn around and loan out the big deposits to earn even a small interest fee. Banks are making up that lost income by now charging customers a fee to hold their large deposits.

So I understand why this sort of makes sense from the bank's point of view. But I worry about the bigger picture. I don't like that we have all this excess cash. It is scary to think that people and companies are not investing in our future nor are banks helping out individuals or small businesses with loans.

Some analyst reviewing today's 512 drop in the stock market said it was a vote of no confidence in our future. I agree. For how can you blame anyone for shying away from investing in the stock market after the last few days of free fall and the jump in gold? Not to forget that Washington just agreed to more spending and more debt.

How do we turn our economy around? How do we give our citizens, and big and small businesses confidence in our future?


Unfortunately, does anyone truly believe our economy and unemployment will get any better considering who is in the White House? Or will confidence return only after we get a true leader? Preferably someone with real business acumen, someone who knows how to live on a budget like the rest of us do. Most of all, we need a leader who understands how to give Americans and American businesses the freedom to succeed or even to fail, then learn from it and come back stronger and wiser. Until then, add my voice in with all the others who are starting to shout "No confidence!"

Location:home