Could banks start charging to hold your money?
Normally, banks use your deposits to make more for themselves. But that could change if the Federal Reserve cuts its interest rate for overnight deposits.
By Jim Probasco
Last week’s release of the October Federal Open Market Committee Minutes included a brief but important discussion that, if acted on, could significantly change the way U.S. banks operate.
The main focus of the meeting had to do with the possibility of the Federal Reserve tapering the $85 billion a month in asset purchases it has been making.
What drew the attention of U.S. bank executives, however, was talk about reducing the interest rate the Federal Reserve pays for overnight deposits.
According to The Financial Times, representatives of two of America’s top five banks said that if such a reduction were to take place, banks might actually start charging customers to hold their money.
Pointing out that interest rates for depositors are already “near zero,” FT said, “Paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.”
Russian English-language news channel RT, noting that financial institutions keep trillions of dollars parked overnight with the Fed as a risk-free revenue generator, said large U.S. banks like Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC) would have little incentive to hold these deposits in the first place if the Fed cuts the interest rate it pays.
Cutting interest rates on bank reserves was part of a discussion about finding ways to add stimulus should the Fed decide to taper. There had been speculation that tapering could start as early as next month.
One bank executive, in revealing that U.S. banks have to pay deposit insurance premiums on the money they park, told The Financial Times, “Right now you can at least break even from a revenue perspective.” A cut in interest rates, the executive said, “would turn it into negative revenue.”
The danger of negative revenue has deterred the Fed from cutting interest on bank reserves in the past. If it were to do so now, one possible solution would be to expand the new Fixed-Rate, Full-Allotment Overnight Reverse Repo Facility, FT said. This would allow banks and money market funds to accrue a small – but positive interest rate.
The net result would be that banks would have no need to charge consumers and businesses for keeping their deposits.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
More from Benzinga
Had $100 in a savings account at a bank. The bank charged me $5.95 a month because my account was below their "minimum balance" requirement. I called them, they told me they would continue to charge the $5.95 a month. I asked what happened when the balance reached zero.
Here is where the fun started. I was told they would continue to charge $5.95 a month. Eventually they would take me to court to collect the negative balance.
I closed the account, and deposited it in my credit union.
I also closed my checking account and opened it in my credit union. The beauty of it is since then, I have come across a sizeable amount of money. That also is deposited in my credit union, awaiting the day I will use it.
Talk about cutting off your nose to spite your face.
WHAT, WHAT, WHAT????????
So let me get this straight: A banks purpose for existing is to take your deposits and loan them out to make money. Now they want to charge YOU too for 'holding' your deposit ?
Ummm... where did I put those coffee cans ?
....not to belabor the point:
So, I guess this is a prime example of how the "really smart people" get even richer - while the really stupid and lazy people (the rest of us) - stand on the sidelines and watch? Really????
Seriously, charging customers for YOU having access to THEIR money? Customers should be charging YOU for playing around with their money when you give out loans and risky mortgage contracts. They should be charging YOU $35 every time you make a mistake with THEIR money, like my Wells Fargo did when you disbursed a check TWICE by mistake and disbursed money to me BEFORE deposits I submitted, when I specifically ASKED you, IN PERSON, to deposit the money first and then disburse a cashier's check to me immediately afterward.
back door deals and undercover bribes... we all know but do nothing..
Next we will be like India paying bribes to get our license back when a police officer asks to see it.. or bribes to get the broken pipes fixed in an emergency when they know they have you like other corrupt nations.. is that what we want??
It IS time for a real All OuT REVOLUTION!!!!
Change the point of a bank to hold my money? Sure. And they can hold someone else.
I'll resort to just my credit union.
Isn't capitalism based on banking in the first place? What is this new ecnomic system we're going into?
there was less going on for the first American REVOLUTION!!
We have nothing left to loose folks!! we only have power in mass numbers our great country is a 2nd world nation for most who built it!!
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