2011 in review: The banking industry

Jeremy Hobson Dec 28, 2011

Jeremy Hobson: You know that feeling when you’re at a restaurant and you’re done with your meal and then the bill comes and it’s way more than you thought?

That pretty much sums up the shock that hit global stock markets this morning when they heard just how much money European banks are storing at the European Central Bank these days — a record $452 billion.

Storing money at the central bank is pretty much like putting money in a mattress. It means as we close out 2011, banks are still very scared about the state of the economy — just as they were at the beginning of the year. Joining us now to recap banking in 2011 is our New York bureau chief Heidi Moore. Hi Heidi.

Heidi Moore: Hi Jeremy.

Hobson: Well let’s start with the thing that impacts all of us consumers in this country when it comes to the banks, and that is fees. This was the year in which many of the big banks decided they wanted to shake out a few more coins out of each of our pockets.

Moore: That’s exactly right. And we’ve seen amazing stories of fees. I was just reading a story of a boy who had $5 in his checking account and ended up with $229 in fees on it because of overdrafts. We’ve seen the ingeniousness of banks and how they structure derivatives, and now we’re seeing it in how they slip fees past us. What’s interesting, though, is that you’ve seen an outcry — not just the Occupy Wall Street movement — but actual consumers went to their banks and said, ‘We don’t like these fees,’ and they managed to stop them. So this is, I think, a good trend because banks are going to keep imposing fees. Their problem is their profits are falling from consumers. It’s very hard for them to make money in that business, especially because of regulation. So they are going to keep imposing fees, and they probably are going to be a little more subtle about it. But now we know maybe consumers are paying attention. So maybe they won’t get away with all of it and we can start questioning the premises of why it is that w’re paying money to have them hold our money.

Hobson: Well you mention regulation and I want to talk about that because obviously this was the year that the big Dodd-Frank financial reform bill was supposed to be implemented. How are we doing on that front?

Moore: So Dodd-Frank was about 900 pages long. But in those 900 pages, it was basically a to-do list. Right? Nothing was actually set out as the rules. It was, we’ll figure this out in 2010, we’ll figure this out in 2011. And so here we are — nothing has really changed in terms of regulation. You hear a lot of talk about it. Consumer Financial Protection Bureau has not yet gotten off the ground. We had something called the Volcker Rule, which was supposed to prevent banks from taking too much risk with their own money. We still don’t know what that looks like. It creates a lot of uncertainty. And it doesn’t help that both Dodd and Frank are leaving Congress, right? So Dodd already left.

Hobson: That’s right. They’re on their way out.

Moore: Exactly. Dodd already left and Frank is going.

Hobson: What about the big story that’s been really shaking the markets over the last many, many months and that is the European debt crisis. That’s had a big impact on the bottom lines of Wall Street banks.

Moore: It has. But the truth is if you’re asking can banks survive a European debt crisis, what you’re really asking is can they survive a worldwide financial crisis. And they cannot because if the euro breaks up in an ugly way as opposed to an orderly way, companies will stay away from the markets, traders will stay away from the markets. And no bank can tell you that it can survive that.

Hobson: All right. Well let’s bring it back Stateside. Finally, I want to ask about something that has really been the issue in this country for the last few years — ever since the financial crisis in ’08 — and that is when are the banks going to start lending again to small business and to consumers?

Moore: Yeah, well consumers shouldn’t hold their breath. It’s almost like something from Greek mythology — these incredibly low mortgage rates and yet nobody can get a mortgage. But if you’re a small business or a medium-sized business, chances are you’ve seen banks become a little more cooperative in the past six months. We’ve seen a big boost in bank lending to businesses. They call those commercial and industrial loans. And we’ve seen them from almost every bank. And that’s a good sign because if those banks are lending to those businesses, then those businesses are borrowing to grow. And if they’re growing, they might hire. And if they hire, we might finally be putting a dent in the unemployment crisis.

Hobson: Wouldn’t that be a nice change for 2012? Marketplace New York bureau chief Heidi Moore, thanks so much and happy new year.

Moore: Thank you. You too.

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