It used to be that bad guys, called bank robbers, robbed banks. Now the banks are robbing us. Authorities just fined five of the world's largest global banks $5.7 billion for rigging benchmark interest rates. This brings the tally of fines assessed seven top banks in Europe and the US to roughly $10 billion.
That's not all
The relationship between businesses and customers is based on trust. How can anyone trust the banks and credit card companies after it was revealed in 2012 that the Libor rate was rigged? Shortly thereafter, we're told that credit card companies and many of the largest banks were guilty of price-fixing credit card transaction fees. And, then we learned that JP Morgan Chase's hedge fund losses, originally estimated at $2 billion, are now thought to approach $9 billion. These revelations come too soon after the financial crisis that has been estimated to cost US households $17 trillion in losses - roughly $100,000 per household.
Everyone is still rattled from the financial meltdown
As if a loss of $17 trillion of wealth is not enough, everyone is still shook up because the world economy is shaky, Europe is having serious problems, and even China's economy has continued to slowdown as a result of a diminishing worldwide demand. The banks and credit card companies should understand that we need honesty, transparency and stability from them - not reports of rigging, price-fixing, or more risky behavior.
Politicians make matters worse
You might think that politicians might do something to help fix the situation. It seems as if too many of them are doing the opposite - calling for more deregulation when experts believe that is what got us into this mess in the first place. The fox has been guarding the hen house, and the hens, most of the American pubic, are getting eaten alive. At least one of them could be chicken little's mom.
The most stable of all the big banks
Prior to its reported loss of $2 million from one risky hedge trade, JP Morgan Chase was considered to be the most stable of the big banks. That's what scares most people. If the most stable of the big banks engaged in this risky behavior, what are the others doing? Meanwhile, after estimates of its loses from a hedge trade gone bad grew to $7 billion, with some estimates going as high as $9 billion, you have to wonder why the CEO is taking such an aggressive stance against the regulators. Hopefully, the regulators are just doing the job they should have done in 2008 prior to the financial crisis.
Making customers pay again and again
What have banks and credit card companies done to rectify their mistakes? One might expect a lowering of fees to compensate the American public for the pain it has endured from...
- Bailing them out
- Learning the Libor rate was rigged
- Hearing that the banks and credit card companies have settled with retailers over price-fixing charges
- Knowing that credit card transaction charges typically get passed on to customers
- Discovering that the most stable US bank is engaging in risky, dangerous behavior
Instead of lowering fees to help customers, what has happened? Fees have skyrocketed. Banks seem to be making customers pay more because of bank errors. Back in 2011, according to David Lazarus of the Los Angeles Times, early withdrawal fees at Bank of America went up nearly 1700% higher than previous fees. If you think that is ancient history, according to CBS Money Watch, bank overdraft fees reached a new high last September.
Banks are businesses that need to make money
While banks are businesses that need to make money, they should figure out how to do so without killing the geese that lay the golden eggs. If the fees are really necessary to stay afloat, the banks need to do a better job of marketing them as a transparent choice rather than as requirements that are often hidden or buried in legal language that most customers have difficulty understanding. So far these fees have only served to anger and frustrate customers -- causing them to distrust the banks that levy them. If financial institutions really need to charge these fees to stay afloat, customers wonder how banks can afford to pay their executives huge amounts in spite of poor bank performance. There is definitely a credibility gap, and banks need to take responsibility for creating it.
If banks and credit card companies want to regain the public's trust
To regain the public trust (that erodes further with each newly reported irregularity), banks and credit card companies need to be more transparent, do a better job of communicating, stop lobbying for less regulation (that many say caused problems in the first place), and stop engaging in fraudulent and risking behavior. Is that too much to ask?
Pointing fingers at others gets old quickly
If banks don't take responsibility for their mistakes and continue to blame problems on regulators, customers, and anybody but themselves, the customers will leave. Where will they go? There will soon be new places, such as the Gang of Four (Apple, Facebook, Google, and Amazon) and PayPal. And there are the old ones, such as under the mattress or in a wall safe. Customers find it "hard to take" when banks pay them little or no interest while they are squandering their assets in so many different ways.