Conservatives on bankers...

[Peikko 1,575]

Why Osborne is getting it right on banking

Mark Bathgate 4:45pm Oh dear. After Massachussetts, it seems like the usual sneering about "populist" politicians, and about voters who aren't happy with the bankers, is back. So here are a few facts of life for those knocking people who think the banking sector could still do with a lot of fixing:

1) The financial performance of the financial services industry over the past decade, in aggregate, has been shocking. Someone who had invested in the US or UK stock market would have seen their investment in real terms (net of inflation) fall by over a third. Shareholders have been brutalized for the best part of a generation now.

2) The last ten years have seen two of the largest equity market collapses in history – the dotcom bust and the bank collapse – and probably $4 trillion in bank lending losses. That is not the sign of well functioning financial markets.

3) Bubble after bubble has been inflated, generally with huge cost to end investors.

4) Shareholders who had invested in bank stocks with investment bank arms have lost a fortune. And remember: the stock market is not owned by guys in Bentley’s in Mayfair, but working people’s pension funds. Investment in banks represented a very significant part of people’s retirement savings.

5) Despite the shareholders getting nothing, the financial intermediaries have seen their incomes go through the roof.

Something is clearly - and massively - wrong here. The owners of capital keep losing, and the middle men keep winning. This is not the Anglo-Saxon capitalist model people felt they had signed up for. Above all else, the bank bailouts and subsequent bonus bonanza is fundamentally offensive to the US and UK culture that reward should be for success. The culture of entitlement that is being shown by parts of the banking sector here is reminiscent of 1970s trade unionism.

The totemic election result on Tuesday is a message to all politicians that enough is enough. Fundamental reform of the financial sector and promotion of shareholder interests is essential. When Thatcher and Reagan promoted much wider share ownership (a fundamentally good idea) they failed to see that politicians like Larry Summers and Gordon Brown (long very close to parts of the investment banking industry) would rig the market against the owners of capital. If the financial sector is to provide huge value to the economy, and to its shareholders, then it needs to return to its pre-1997 market and shareholder-orientated structure.

This is not a “populist” reaction from the electorate. It is a revolt of the shareholders – pension savers – who realise they have been getting shafted, and who have a perfect right to want things to be done differently.

It is to the credit of George Osborne that he was one of the first senior politicians to realise the importance of financial reform, and particularly returning to the principles of Glass-Steagall. Conservatives should own the issues of financial sector reform and shareholder rights. Thatcher created the first City Big Bang by recognizing the need to reform the vested interests and increase competition – the Cameron government should show the same determination and create Big Bang 2.

Link

[DEDixon 39]

to repeal Glass-Steagall - The final bill was passed in the Senate 90–8 (one not voting) and in the House: 362–57 (15 not voting). The legislation was signed into law by President Bill Clinton on November 12, 1999.

The repeal enabled commercial lenders such as Citigroup to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Elizabeth Warren, author and one of the five outside experts who constitute the Congressional Oversight Panel of the Troubled Asset Relief Program, has said that the repeal of this act contributed to the Global financial crisis of 2008–2009.

it is all on wiki (oh please shut up about wiki, wiki does have a review process).

reform is needed, but obama needs to keep his mouth shut on this one until the economic recovery gets out of first gear... wait for 3rd gear to introduce reform, pass reform in 5th gear.

[DEDixon 39]

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obama doesn't like company bankers but he likes the fed banker... doesn't make sense to me:

Deputy press secretary Bill Burton, talking to reporters as Obama headed to Ohio Friday, said the president has "a great deal of confidence" in the actions Bernanke already has taken and believes he's "the best person for the job."

[NickD 202]

" Obama hits Wall Street, pushes for bank limits

By PHILIP ELLIOTT and DANIEL WAGNER Associated Press Writers The Associated Press

Thursday, January 21, 2010 5:22 PM EST

WASHINGTON (AP) — Embracing Depression-era policy and populist politics, a combative President Barack Obama chastised big Wall Street banks Thursday and urgently called for limits on their size and investments to stave off a new economic meltdown.

Investors responded by dumping bank stock.

Obama's rhetoric covered the whole financial industry, but the key changes will affect only a few high-profile players, including JPMorgan Chase & Co., while sparing investment banks like Goldman Sachs Group Inc. The move could undercut Treasury Secretary Timothy Geithner's strategy of maintaining close ties with the financial industry as part of the administration's overhaul efforts.

"We have to get this done," Obama said at the White House. "If these folks want a fight, it's a fight I'm ready to have."

"We've come through a terrible crisis," the president said, pivoting the White House focus from health care to an economy that has been slow to recover during his first year in office. "The American people have paid a very high price. ... That's why we're going to rein in the excess and abuse that nearly brought down our financial system."

Markets tumbled on the news, the Dow Jones industrial average losing 213 points and continuing this week's slide that has erased the Dow's gains for 2010 and provided yet another dire sign for recovery.

Obama's announcement included changes that have been advocated for over a year by former Federal Reserve Chairman Paul Volcker — who appeared with the president at the White House — particularly by endorsing Volcker's proposal to ban banks that take deposits from also trading stocks for their own profit. The change would separate commercial banks from investment banks, a line that was blurred a decade ago by the repeal of the Depression-era Glass-Steagall Act.

That won't help, suggested Rob Nichols, president of the Financial Services Forum, an industry group representing 18 of the largest financial companies.

"Proposals to preemptively break up large, well-managed and well-capitalized banking companies — or to reimpose Glass-Steagall restrictions — are based on a misdiagnosis of the causes of the financial crisis," he said.

Neither the president's proposal, which would need congressional approval to take effect, nor his aggressive tone is likely to help the administration's case in working with Wall Street and finding support from banks that will need to boost lending to support an economic recovery.

Geithner has worked closely with bankers since coming into office, especially when designing proposals to overhaul financial regulation. Many banks have responded by supporting administration plans publicly and offering their assistance behind the scenes.

Thursday changed that.

Bank representatives usually give input on such issues and are briefed on decisions. But that apparently wasn't the case this week, though officials said the administration still values bankers' opinions.

Said White House press secretary Robert Gibbs: "I'll let them decide where they come down on this proposal. I'll let them decide where they come down on whether taxpayers should be paid back for what they lend."

Geithner said he anticipated the blowback. "You're going to hear a lot of concerns from bankers on this," he acknowledged in an interview on PBS' "NewsHour." But that doesn't mean it was the wrong call, the treasury secretary said.

"The banks that have the privilege of taking advantage of the safety net should not use that to subsidize risky activity," Geithner said in the interview.

The administration also would change an existing cap that limits a bank from holding more than 10 percent of the deposits insured by the Federal Deposit Insurance Corp. It was unclear how many banks that change would affect.

The proposed division between commercial and investment banking would hit Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. But some big banks would not be affected.

Investment banks Goldman Sachs Group Inc. and Morgan Stanley don't take consumer deposits. They became banking companies during the financial crisis, to gain access to discount loans from the Federal Reserve.

Now that the financial system has stabilized, there is nothing keeping them from becoming non-banks without changing their businesses.

Financial industry officials are especially frustrated by a proposed change they see as political and punitive without doing anything to prevent future crises. They say the changes would not have prevented the largest bank failures of the crisis.

American International Group Inc. was an insurance conglomerate, and did not have consumer deposits. Washington Mutual and Wachovia failed because of unsound lending, not speculation and for-profit trading.

Obama has tried to sell his financial changes in part by saying they would end the era of "too big to fail" and prevent future Wall Street bailouts. But Thursday's move highlighted an uncomfortable fact: The administration's proposed overhaul would provide government assistance for large, failing institutions.

Behind the public pronouncements, a gap is emerging between administration officials focusing on voters who are angry at banks and others such as Geithner who have courted them as partners in economic recovery.

White House officials acknowledged they did not give a heads-up before the announcement despite a private dinner Wednesday night with bank CEOs, Geithner and White House senior adviser Valerie Jarrett. That left bankers fuming in private and sharing annoyance in public.

An open fight with the banks might help Obama, which has called bankers "fat cats" and proposed a fee on large banks to cover shortfalls in Treasury's $700 billion financial rescue fund.

But it highlights the political costs of being represented by Geithner, who helped engineer the bailouts before Obama came into office.

Bankers helped elect Geithner to his last job: president of the Federal Reserve Bank of New York. They enjoyed cordial relations with him as the Obama administration rolled out its proposed overhaul of the financial system, but lately have questioned whether he truly speaks for the White House.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Original Article can be found at:

http://www.charter.net/news/read.php?id=16...s=0〈=en"

[Peikko 1,575]

FREE checking began as a privilege. Once it spread, customers felt entitled. Eventually, it became a commodity, as most banks felt they needed to offer it. Soon, people took it for granted.

But now, free checking may be an endangered species.

Banks are feeling heat from all sides. This week, President Obama moved to limit the size and activities of the biggest institutions. Last week, he proposed a tax to recover bailout funds.

The biggest impact on checking accounts, however, is likely to come from new regulations governing overdraft protection. Starting in July, banks will need explicit permission from customers before allowing them to use their debit cards to spend more than they have in their bank accounts on a one-time purchase. Similar restrictions will apply to A.T.M. withdrawals.

Banks earn billions in overdraft fees, money that helps pay for free checking.

A chunk of that revenue will disappear when some consumers elect not to sign up for the opportunity to spend more than they have. This week, Bank of America said that $160 million in overdraft fee revenue had already disappeared, because of changes it made in its policies ahead of the new federal rules.

When that money evaporates as other banks comply with the regulations, they’re going to try to make it up some other way, particularly if they’re paying more taxes to the federal government and have fewer ways to trade their way to outsize profits.

So might banks try to do away with free checking entirely? And if so, what would they replace it with?

Some hints lie in the brief history of the offering. In the old days, banks would take in your money, pay you some interest and lend the money to others at much higher rates. Many checking account holders paid monthly or other fees, particularly if they had a low balance. Wealthy clients often paid nothing.

In the 1990s, Washington Mutual brought free checking to the masses. “It was an anchor product that allowed them to get customers in the door,” says Jim Neckopulos, a Hitachi Consulting vice president who worked with Washington Mutual at the time. Then, the bank tried to get customers to sign up for loans and other more profitable services that could subsidize the free checking.

Soon, most every bank had some version of free checking, and they were helped by the rise of the debit card. “People’s behaviors changed dramatically,” says Aaron Fine, a consultant and partner at Oliver Wyman. “They were no longer balancing their checkbook and were overdrawing their accounts with the card. And that’s what allowed it to be profitable.”

How heavily did banks lean on the overdraft fees? Well, G. Michael Flores of the financial services consulting firm Bretton Woods estimates that the average customer paid 12 overdraft or other insufficient-fund charges in 2009, often at $25 or $30 per transgression.

Starting in July, customers who don’t want to tempt themselves can turn off the ability to overdraw in a store or at the A.T.M. Nobody knows how many will do so, but it will probably be enough to make free checking unprofitable for many of the banks that had feasted at the fee trough, particularly those with large networks of branches to support.

Some of the less creative institutions will tack on monthly fees again and hope customers don’t flee. Or they may raise the minimum balance requirements that some banks already have. If you value having access to a particular branch in your neighborhood, you may have no choice but to comply unless you’re willing to go to the trouble of switching banks.

Other banks may try something like what Fifth Third Bank has done with its Secure Checking Account package. The bank charges $7.50 a month, but it throws in identity theft protection, which millions of consumers already pay at least that much for elsewhere. Banks could add other services, too, say an hour with a salaried financial planner (who doesn’t push the bank’s own products).

Another option is the à la carte model, where banks offer bare-bones checking for free, but let people pay extra for things they truly value. For a few dollars a month, say, you could use any A.T.M. on earth free.

But the most popular option seems to be to get retailers to pay for a big part of free checking, not bank customers.

Link

Why retailers?

Well, remember our old friend the debit card, which upended the industry a decade or so ago? Banks don’t just get overdraft revenue. They also get a cut of the fees merchants pay when someone uses a debit card, and banks generally get a bigger cut if cardholders sign for their purchase instead of using their PINs.

You see where this is heading, right? If banks can get enough people to use their debit cards and sign for their purchases often enough, it will go a long way toward keeping checking free and even subsidizing better interest rates or rewards. (It may also cause merchants to raise prices to cover those card fees, alas.)

One company, BancVue, has already helped over 500 smaller banks and credit unions set up free rewards checking accounts. With these accounts, you earn interest rates of 2 to 4 percent or so on balances up to, say, $25,000, as long as you meet certain conditions. Using your debit card (and signing for your purchase) 10 or 15 times a month is generally one of them.

Given that using the card that much may cause you to overdraw more, the banks may not be able to afford such outsize interest rates much longer if lots of their customers opt out of overdraft protection and stop paying fees.

Even so, the interest rates are likely to be better than a big bank can offer. So if you maintain large balances in your checking account, these accounts may offer decent value. You can find a list of them at checkingfinder.com by clicking on the small map of the United States in the lower left of the home page.

A new company called PerkStreet Financial offers a different twist on free checking. You pay no fees for your account as long as it remains active, and you get about 1 percent back of every debit card purchase when you sign while buying (and for Web or recurring charges, say for monthly bills). You then redeem that 1 percent in the form of perks (hence the name) like gift cards from Starbucks and iTunes.

For customers with lower balances who don’t need branches, 3 percent interest on a rewards checking account won’t mean much. But earning $150 in rewards on $15,000 a year in annual debit card spending might.

Dan O’Malley, PerkStreet’s chief executive, says overdraft fees are not a big part of his business model; only 40 percent of customers have even signed up for the service. While he won’t say exactly how many debit transactions his customers must make for PerkStreet to break even, he says that 15 a month would probably be plenty.

Meanwhile, he’s not optimistic about his competitors’ ability to maintain free checking or keep him from picking off some of their customers. “As overdraft revenues go away, it will expose the soft underside of many banks’ business models,” he says. “Banks saddled with branch costs are going to introduce monthly fees, and customers are going to have a problem with that.”

Maybe banks will, and maybe they won’t. Not every checking account provider built its business entirely around overdraft fees, after all.

Still, if you bank at an old-line institution, there’s a good chance it’s going to tinker with your checking account soon. And when it does, you’ll have to decide what hoops you’re willing to jump through to keep the letter “r” from falling out of your “free” account.

Edited January 22, 2010 by Madame Cleo