Bureaucrats Are Moving To Cap Bank Overdraft Fees, Which Will Hurt the People It’s Meant To Help

“The Consumer Financial Protection Bureau (CFPB), calling the prices of bank overdraft protection “junk fees,” now proposes to interfere with these prices.
We’ve been down this road before. Last year, the CFPB proposed capping credit card late fees at $8 as part of President Joe Biden’s populist appeal to consumers who dislike this cost, which is obviously everyone. The problem, as I and many others explained at the time, is that late fees encourage timely payment, and their practical elimination leaves lenders unable to offset the risk of working with people who have lower credit.

The result will be fewer lines of credit available to those who need credit the most. But that’s a difficult outcome for most to see compared to the tangible benefit of lowering fees. Even consumers denied credit won’t know what or who to blame, so it’s no surprise that CFPB is expected to finalize the late fee rule any day now.

The next CFPB price control scheme would cap overdraft fees at levels as low as $3 per overdraft transaction. Commenting on this rule, Biden sounded perfectly populist: “For too long, some banks have charged exorbitant overdraft fees—sometimes $30 or more—that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines.” He added, “Banks call it a service—I call it exploitation.”

I get it. I remember the annoyance I felt when I was charged such fees. However, I reminded myself that it was the price to pay for not having one of my checks bounce or a debit card payment declined. It’s fair to wonder whether most of the people proposing these rules have ever had a checking account balance low enough to need the overdraft cushion.

In fact, overdraft protection is an optional, opt-in service that allows consumers to spend money they don’t have at the bank’s expense. Purchases are approved that would otherwise be declined for lack of funds. For low-income consumers, this service is sometimes vital. And indeed, consumers report by wide margins that they are glad it exists even though it naturally comes at a cost.

Thankfully for all of us, CFPB bureaucrats agree that banks should charge a fee. Unfortunately, they think they know best what these fees should be.”

“Banks might go even further. Given the slim profit margins they earn on small bank accounts, it’s possible that the loss of overdraft protection revenue results in some simply abandoning the very customers—the least well off—whom interventionists claim to be protecting.”

https://reason.com/2024/02/08/bureaucrats-are-moving-to-cap-bank-overdraft-fees-which-will-hurt-the-people-its-meant-to-help/

Is First Republic Bank’s failure sign of a slow-motion banking crisis?

“JPMorgan Chase bought most of the assets of First Republic Bank in a deal announced early Monday, just after the federal government seized control of the troubled regional bank.
First Republic is the second-largest bank failure in US history, following Washington Mutual which collapsed in 2008 and was also acquired by JPMorgan. It comes after the failure of Silicon Valley Bank (SVB) and Signature Bank in March, which were the third and fourth largest US banks to fail, respectively.

Like Signature Bank and Silicon Valley Bank before it, First Republic saw a mass exodus of depositors to larger institutions, who feared that the bank would not have the capital to cover huge unrealized losses on its books due to rising interest rates. If it’s a signal of a larger banking crisis, it seems to be one that’s unfolding slowly, but it’s certainly possible that more banks could fail.”

New Regulations Won’t Stop the Next Bank Collapse

“whether SVB’s situation would have been different had these regulations remained in place is highly questionable. “You knew just by looking at this bank that it was growing at exceptionally rapid rate, which should have been a red flag to look at,” Thomas Hoenig with the Mercatus Center at George Mason University told Marketplace. “So I don’t blame it on so much on the rollback of Dodd-Frank. I blame it on the fact that the bank management didn’t understand the fact that interest rates change and they need to be managing their portfolio accordingly.”
Besides, even without the stricter rules, bank regulators still could have acted but did not. So, the idea that new regulations are needed to stop the next midsize bank collapse is suspect, to say the least.”

“”It appears that the leading causes of the failure of Silicon Valley Bank were managers who maintained a woefully under-diversified asset sheet, and a small group of investors who sparked a panic that led depositors to withdraw money at a rate that would be unsustainable for any bank,” said Sen. Chris Coons (D–Del.) in a statement. “SVB was subject to federal and state supervision, and it’s not clear what additional regulatory requirements might have yielded a different outcome.””

The Export-Import Bank’s New ‘Made in America’ Corporate Welfare Scheme

“Dating back to its founding in 1934, the Export-Import Bank of the United States has had a pretty specific mission: subsidize the export of American-made products by extending cheap credit to foreign companies looking to buy our stuff.

Whether the bank serves any legitimate purpose is another matter entirely. These days, the Export-Import Bank mostly acts as a slush fund for politically connected American corporations like Boeing and General Electric that would have no trouble doing business abroad but are more than happy to benefit from its largesse, doled out in the form of low-interest loans to potential buyers. Sometimes it also blows American taxpayer money on propping up government-run monopolies in foreign countries.

Still, the mission has always been clear. It’s right there in Executive Order 6581, which President Franklin Delano Roosevelt signed in 1934 to authorize “a banking corporation…with power to aid in financing and to facilitate exports and imports and the exchange of commodities between the United States and other Nations.” The bank’s current mission statement, too, clearly spells out a goal of “supporting American jobs by facilitating the export of U.S. goods and services.”

Now, quietly, the Ex-Im Bank is taking on a new—and entirely domestic—project.

At a meeting last week, the Ex-Im Bank’s board of directors voted unanimously to approve a so-called “Make More in America” initiative. The press release announcing the new program is a gobbledygook of crony capitalist doublespeak virtually devoid of specifics about how the program will operate or what it will cost. The new program “will create new financing opportunities that spur manufacturing in the United States, support American jobs and boost America’s ability to compete with countries like China,” Reta Jo Reyes, the bank’s president and board chair, says in the statement.

This latest development at the Ex-Im Bank is another aspect of the sprawling federal effort that began under President Donald Trump and continues under President Joe Biden to subsidize American manufacturing. The creation of a “domestic financing program” at the Ex-Im Bank was part of a series of supply chain recommendations made by the White House in June. A few days before Christmas, the Ex-Im Bank filed a vague notice in the Federal Register outlining plans to implement the program.

But there has been little clarity about what the program will aim to do, which businesses might stand to benefit from it, or how its results will be judged. In the announcement last week, the Ex-Im Bank only said that the new program will “immediately make available the agency’s existing medium- and long-term loans and loan guarantees for export-oriented domestic manufacturing projects.””

“the government will throw taxpayer dollars at investments that private capital markets have deemed too risky.

But how will the government decide which projects to fund? Toomey also asked the bank to explain what steps will be taken to “ensure that domestic transactions will not be influenced by political pressures.”

The Ex-Im Bank’s response to that query is even more worrying. There don’t appear to be any safeguards in place. “Financing is available to all qualifying applicants based on criteria established by law and agency practice,” Lewis wrote in reply.

Translation: Any company with the resources to hire the attorneys, accountants, and lawyers necessary to decipher the bank’s policies and sufficiently schmooze decision-makers can get paid.

“There is no reason that taxpayers should have to back domestic financing when we live in a highly developed market economy in which promising businesses have access to capital on competitive terms,” says Toomey.”

Biggest U.S. Banks Seen Adding to Reserves for Pain Yet to Come

“When it comes to loan losses sparked by the Covid-19 pandemic, U.S. banks aren’t taking any chances.

The nation’s four biggest lenders probably set aside about another $10 billion for bad loans in the third quarter, according to analysts’ estimates compiled by Bloomberg, even though stimulus moves by the government and Federal Reserve have so far staved off a spike in missed payments.

While the third quarter’s tally is well below the pace of the first half, it means that the banks will not only have covered the losses they’ve seen since the start of the pandemic, but also added almost $50 billion to reserves for future pain. Investors’ big question will be whether that comes from typical caution, or if the banks are seeing worrying signs as forbearance programs wind down and stimulus efforts get bogged down in a partisan fight.”

“Banks may be setting aside more than they need for loan losses to take advantage of strong trading revenue and the fact that they can’t return excess capital to shareholders. The Fed this month extended through the rest of the year its unprecedented constraints on dividend payments and share buybacks for the biggest U.S. lenders.”