As Bank Transfer Day has come and gone, with thousands taking their money out of banks and moving to credit unions, a new defense of the banking industry has arisen: they wanted to get rid of these customers anyway.
The Christian Science Monitor published a conversation with a columnist from The Motley Fool, Morgan Housel, on Monday, where he explains that Bank Transfer Day was an unequivocally good thing for big banks. Why would losing thousands of customers be a good thing for any business, you may ask?
According to Housel, uncertainty in European markets has led to influx of cash deposits into big banks’ vaults. Good, right? Counterintuitively, Housel argues that this is bad news for banks.
“They’ve been seeing a higher inflow of deposits than they can turn into loans,” said Housel. “That’s putting pressure on their margins because banks have to pay [FDIC] premiums and overhead costs. And that’s really accentuated by smaller accounts because in the past banks could earn money [from customers with lower balances] from overdraft fees and debit interchange fees and a lot of that has been scaled down through recent regulations.”
Between only getting 21 cents per debit transaction, and no longer being allowed to let customers overdraw their accounts for effective APRs of 5000%, banks just can’t make money on poor (probably young) people anymore. So good riddance!
The Wall Street Journal‘s coverage of Bank Transfer Day echoes this sentiment.
“People who gravitate to credit unions tend to be unprofitable for giant banks because of the small balances they keep on deposit, low number of products they buy and the relatively high account-maintenance expenses at big financial firms,” wrote the WSJ in a story on credit unions’ successful Saturday.
The interesting omission in both CSM and WSJ‘s coverage of Bank Transfer Day is that they simply assume people with small numbers on their bank accounts were the only ones fed up with big banks, and that Bank Transfer Day was only about debit card fees.
What’s especially charming about this line of thinking is that it gets quite ugly if you take it backwards in time — sure, it can explain why banks wouldn’t miss poorer customers now, but why did they court these very same customers over the last few years with free checking and debit cards? Was it only to rake in fees on the poor until Washington finally told them they had to stop?
That is, after all, the flip-side of the argument being put forth by CSM and WSJ and it isn’t that pretty, is it?