Bankers are not easy to love. In fact, from the mean old man in “It’s a Wonderful Life” to the bonus-baby CEOs who put the world through the financial crisis a few years ago, bankers have become a class of citizen that people love to hate. Like a lot of hatred, though, that sentiment might come back to haunt the hater — specifically, bank customers.
Bankers almost seem to be the inspiration for the concept of schadenfreude: the feeling of enjoyment that comes from the misfortunes of others. For example, I recently read two stories about bankers that most people would react to with something between an indifferent shrug and a satisfied chuckle:
- JP Morgan Chase, the nation’s second largest mortgage originator, forecast that its mortgage operations will lose money this year.
- Banking consultant Strunk, LLC, reported that, over the past decade or so, bank losses on the average free checking account have risen from $50 a year to $200.
Bad luck for the banks, you say. Yes, but also bad luck for banking customers. Here are some reasons why bad news for banks often becomes bad news for their customers:
- Today’s defaults are tomorrow’s loan refusals. During the mortgage crisis, it became a popular notion that it was somewhat honorable for people to walk away from their houses rather than continue to pay for a property that had declined sharply in value. You can rightly criticize bankers for predatory lending practices that included deceptive loan terms, but it is a completely different thing when people blame the banks because the market went against them. When people walk away from their loan obligations, chances are they are denying someone in the future the chance to get a mortgage, as loan capital is reduced and banks tighten lending standards.
- Everyone loses when a market goes sour. You may not feel sorry for JP Morgan Chase because its mortgage operations are losing money, but here’s how it will affect you or someone you know: Chase is laying off 6,000 mortgage employees in response, on top of 11,000 laid off last year. Constricting supply just means it is going to be tougher to get a mortgage in the future.
- Their losses become your fees. If product losses don’t restrict the future availability of those products, they are likely to increase the cost of them. When companies do not cut products altogether or reduce service for those products, the only rational solution to losing money is to raise fees. So, the fact that losses on free checking accounts have quadrupled over the past decade helps explain why free checking accounts are getting harder to find.
- Regulation raises costs — to customers. The right level of regulation is a delicate balance. I believe that repealing the Glass-Steagall Act in the late 1990s was a huge mistake. It didn’t cause the financial crisis, but it greatly contributed to the severity of it. Glass-Steagall worked for decades because it was broad in scope. When regulations start micro-managing how banks operate, it costs much more money to implement and to enforce — and those costs get passed along to customers and taxpayers.
- Taxing the banks means taxing their customers. Here again, costs get passed along. During good times, banks are popular targets for extra taxes and fees because they seem like fat cats, but raising the cost of doing business usually raises the cost of that business’s products.
Ultimately, the reason things that hurt banks end up hurting consumers is that we need banks. They keep our money safe, lend us money, and provide technological innovations from ATMs to smartphone apps that have made access to our accounts more convenient.
The problem is not that all banks are bad, but that some banks are much better than others. For example, some get the idea of customer service while others treat customers as a nuisance. Also, big banks use their name recognition and distribution to routinely get away with charging higher checking account fees, and paying lower interest rates, than smaller banks.
The solutions to these problems are informed and active consumers. The Internet gives you access to easy information on hundreds of banking options — including Internet-based accounts, which routinely offer lower fees and higher interest rates. So, the next time you are tempted to say something negative about banks, keep in mind that it may not be in your interest to tar all banks with the same brush. It is more constructive to blame specific banks rather than all banks.
There is an old, idealistic saying: “If you don’t like the world, change it.” That’s a nice sentiment, but not often easy to do. However, if you don’t like your bank, you can change it. That’s much more easily done, and it won’t just benefit you; but if consumers reward the best banks with their business, it will slowly but surely change banking for the better.