I watch with interest as the banks now lobby to avoid new federal rules about risk. In other words, the fat-cat bankers now want to be able again to make risky bets with investments. Why not? After the 2007-2008 debacle, no individual bank executives went to prison. Sure, banks may have paid some fines here and there, and there may now be some civil suits, but — I’ll say it again — no prison terms and, of course, more importantly, taxpayer bailouts.
So, the banks — who essentially have licenses to print money on a safe-as-churches basis, by paying interest to savers and then charging two points or so more to lend the same money — now want to again embark on taking additional risk for more profits. Bank lobbyists are in full-court press mode and attacking members of Congress. Why not? We taxpayers bailed ‘em out before, right? And the traditional about two-point spread? It’s bigger now, since the Fed is controlling the interest-rate purse strings. Banks in some cases are making two and three times the usual profit, paying tiny interest on savings and charging far more for loans.
Banks are in the business of maintaining a stable United States. Banks do take risky bets — clearly, during the 1990s and through 2008, they gave mortgages to folks who should not have passed their credit screens (and there may well have been government encouragement to violate such rules). Now banks loan less for real estate, requiring hefty down payments and lower loan-to-value ratios, which makes it more like shooting fish in a barrel. Still, it’s risk.
It strikes me that, if banks want to be in the even riskier business of investing, they should close the branches, get securities tickets and become securities brokers. Maybe Bank of America or one of the big guys, when they exit banking, would buy my practice in order to get started. I’d be happy to sell the practice for, say, maybe an hour’s worth of the bank’s gross revenues? Then the (former) bank could itself be in the risky business of investing and be subject to all of the SEC and FINRA rules. Of course, if the banks all did that, where would I keep my day-to-day cash? Under the mattress? Buried in the backyard?
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The point? Banks don’t need to be in the business of risk, at least not anything more risky than mortgage and business loans, which, arguably, they cheated on anyway. If they want extra profit, let them figure out some other way, a way that does not require taxpayer bailouts, then new higher taxes and a near bankrupting of the U.S. economy.
Have an incredibly good week and take special care with your customers so that you are in line with their risk tolerances.