Today’s FED Meeting Reaffirms Original Time Line for Raising Rates

Today’s FED meeting brought little new news as the Federal Open Market Committee voted to keep interest rates at near zero percent (0.25%) for another term.

Despite recent positive signs in the economy (lower jobless rate, DOW hitting 13,000, etc) steep gas prices and general public sentiment were preventing Ben Bernanke from backing off his stance on keeping rates at such low levels. The outcome of the meeting was essentially reiterating the FOMC’s original projection of keeping rates historically low until sometime in late 2014.

What maybe should have received a little more attention in the meeting was the warning that ‘inflation may rise temporarily’ due largely to the increase in energy prices. This may be alarming for savers as interest rates (particularly savings rates) remain at record lows. So far in 2012 though, inflation rates have remained relatively positive compared to last year. In January of this year, inflation was sitting at just 2.93%. Compare this to the average of 3.16% for 2011.

The FED also refused to take another round of quantitative easing off the table should economic conditions worsen. Another round of quantitative easing could hasten inflation though, so the FED may be reluctant to call for another round if inflation picks up at a quicker pace than projected.

Affect on Bank Rates:

Deposit rates – While we did see an uptick in some money market accounts this month, expect rates in general to make no significant move up or down. It’d be nice though if they could at least keep up with inflation, but don’t count on that for many months to come.

Refinance rates – Both new home loan and refinance rates will continue to hover just barely above all-time lows. Refinance rates should continue to be very attractive for eligible borrowers as long as the FED keeps the federal fund rate at it’s current level of 0.25%.

New Fees Potentially on the Horion Again for Bank of America Customers

Just months after the looming threat of new debit card fees came to an end, Bank of America is again testing for new ways to add revenue by means of implementing new fees.

Currently Bank of America is undergoing testing in 3 states to gauge satisfaction (or acceptance) in new account platforms. The new account types are classified in a range from what they call an “Essentials” option, which provides basic needs, to a “Premium” option that will feature a whole host of sub-accounts. And although the testing has only been underway for a relatively short term, some have speculated that if it were to be rolled out nationwide, it could pose a serious threat to Bank of America’s already dwindling customer base.

We think forcing customers and their active accounts to be lumped into buckets, essentially classifying their worth to the bank, could be construed as slightly insulting to current BofA customers. And what may make matters even worse is if the new fees are hitched on to the back of ‘lower value clients’ or those holding less assets and maintaining less accounts.

To be fair though, Bank of America has seemed to be somewhat of a Guinea Pig for testing new fees. After the signing of the Dodd-Frank Financial Reform Law, Bank of America lost roughly $450 million in revenue from fees that were no longer considered lawful. This loss of revenue may have pushed them into the Guinea Pig roll due to a dire need to add new revenue streams, but the nation’s other big banks are watching closely and will likely follow BofA’s lead if any new revenue pipelines materialize with little consumer backlash.

2011 – 4th Quarter Earnings for FDIC insured Banking Institutions

During the second quarter of 2009, the outlook of both the FDIC and the banks being covered by it was very bleak. In that quarter FDIC insured banks lost a collective $3.5 billion. Also, when this report came out in August of 2009, 81 banks had gone bankrupt since January of that year and another 416 were on the FDIC’s potential “problem list.”

Since the 2009 report the overall list of problematic banks has nearly doubled, yet profits by banks covered by the FDIC has soared immensely.

The last quarter of 2011 was an extremely positive one for banks under the umbrella of FDIC insurance. Collectively they reported earnings of $26.3 billion and have experienced their 10th consecutive quarter where earnings have registered a year over year increase.

Contributing Factors to Success for FDIC-insured Banks:

- Despite the fact that savers are losing buying power in their dollars by investing in CD’s right now (when compared to today’s inflation rates) they are still throwing money at these financial instruments at an increasing rate. Institutional money is also continuing to invest in these vehicles despite savings rates sitting far below current inflation rates. According to the latest FDIC press release, “deposits in domestic offices increased by $249.7 billion (2.9 percent) during the quarter. More than three-quarters of this increase ($191.2 billion or 76.6 percent) consisted of balances in large non interest-bearing transaction accounts that have temporary unlimited deposit insurance coverage.”

- Loan portfolio’s are also continuing to grow. According to the press release at FDIC.gov, loan balances posted a quarterly increase for the third quarter in a row. So even though lending restrictions have tightened greatly since the early 2000′s, it appears consumers with acceptable credit scores are continuing to refinance at record low rates.

- The infamous “Problem List” of under-performing banks insured by the FDIC continues to fall despite being significantly higher in number than they were back in 2009 – immediately following the US banking crisis. During the last quarter of 2011, the overall number of problematic banks fell from 844 to 813 – the smallest overall number of problematic banks since the first quarter of 2010.

TD Bank Upping their Fee Structure Once More

It’s only been months since TD Bank raised the fees associated with some of their checking accounts, now they’re bumping up the costs of other established fees.

New Cost of Fees for TD Bank Customers:

Wire Transfers:

Old Cost – $10. New Cost – $15.

Money Orders:

Old Cost – $4. New Cost – $5.

Certified Checks:

Old Cost – $4. New Cost – $8.

Stop Payment Fees:

Old Cost – $25. New Cost – $30.

Also, if you happen to hold one of their liquid savings accounts (like a money market account) you may be hit with an additional fee when you make too many withdrawals and/or transactions. On some of these accounts, if you go over your 6 allowed monthly transactions, you’ll get dinged 9 bucks.

Granted these aren’t your typical everyday transactional fees or general, wide-sweeping fees, in which Bank of America was considering imposing, but they are still another drop in the bucket for already wavering big banks.

Big bank consumers in general have been put off by the imposition of new and/or additional fees their banks have been imposing throughout much of 2011. This has lead to a boon in new accounts for local credit unions as well as highly publicized disgust of the big banks through social media outlets.

Bank of Ameria Taking Back it’s Debit Card Fee Proposal

That was quick.

After an immediate outcry from consumers and politicians regarding Bank of America’s proposal to charge a $5 monthly fee for debit card usage, they are now rescinding this proposal.

When Bank of America first went public with this there were little signs of it not becoming a realty, and in fact, more likely becoming an industry standard. Following B of A’s decision to charge for debit card usage other big name banks (ie Chase, Citi, Wells Fargo, etc) began to follow suit with their own plans to test such fees. However, within hours of these announcements, the internet and social media outlets erupted with negative sentiment leading even President Obama to go public with his concern over the matter.

As we noted last week, many big banks then freaked out over the threat of losing consumers en masse and responded with immediate retractions of these plans. Subsequently this lead the reluctant Bank of America to finally, as of late last week, decide not to impose such fees out of fear that they would be the only one doing so.

Reversal of Debit Card Fees

It appears the nation’s largest banks are changing their mind on the imposition of fees on consumer debit card usage. After the recent outcry from debit card consumers across the country Chase Bank, US Bank, PNC Bank, and Key Bank have all just issued press releases stating they WILL NOT impose fees on their checking account customers’ debit card usage.

A huge trend had previously been settling in after news that Bank of America, CitiBank and Wells Fargo (among others) had all begun testing the imposition of small fee(s), typically $3 to $5 per month, for those using their debit card for purchases and not meeting certain account requirements (ie minimum balances, etc).

This almost immediately lead to vocal outrage by consumers with an explosion of tweets, disgusted facebook threads, and the like raging against these new rules.

Here at BankVibe.com, we had already discussed the terrible timing in which these new fees came about. In general consumers have had an unfavorable opinion of the nation’s largest banks – which undoubtedly originated from the bank bailouts of 2008 and has only worsened with a growing number of fees and penalties imposed on low revenue generating customers (ie those with low balances and very few accounts).

The industry-wide response has been an influx in credit union and community bank deposits and a loss of accounts from the nation’s largest banks. Throughout the course of the last few years we’ve seen consumers pouring out of big banks to opt for accounts with smaller, locally based institutions (mainly credit unions or online banks like this one) who don’t impose fees and, in the case of credit unions, who don’t have profit-hungry shareholders to report to.

Glad to see things have reversed for the time being. We’ll see if it sticks.

Chronological Run-Down of Debit Card Fee Imposition:

- 2010 provision to Dodd-Frank financial-overhaul law reduces amount banks can charge merchants for debit card usage by nearly 50%.

- Industry analysts suggest that banks will lose $6 billion due to new amendment.

- Banks test new ways to make up for losses (mainly by imposing debit card fees to low revenue clients)

- Bank of America goes public with decision to impose $5 monthly fee. Chase Bank follows by testing $3 monthly fees in February.

- Immediate outcry from public through social media as well as disdain from main stream media and politicians (most notably President Obama).

- Small credit unions begin raking in new customers at unprecedented rates. BethPage Federal Credit Union of New York reports adding 1,500 new customers the week following Bank of America’s initial announcement of debit card fees.

- Banks pullback swiftly with many large institutions pledging to impose ZERO fees for debit card usage to differentiate themselves from the likes of Bank of America and Wells Fargo.

Zions Bank gets Slapped with Lawsuit for Shady Overdraft Fees

This appears to be perfect timing for a lawsuit seeking class action status over a bank’s overdraft fee practices.

After weeks of buzz surrounding bank fees, primarily triggered by two of the nations largest banks (Bank of America and Wells Fargo) going public with the intent to impose fees for simply using your debit card, a popular bank in the west, Zions Bank, is now being sued for it’s underhanded overdraft fee system.

Allegations Against Zions Bank (Salt Lake City, Utah):

- Customer claims Zions Bank makes it nearly impossible to avoid their overdraft fees.

- Customer claims Zions Bank manipulates order of debit postings to maximize overdraft fee potential.

- Customer claims Zions Bank does NOT regularly deny attempted charges to their debit cards when bank account is close to or below zero.

- Melinda Barlow, the customer initiating this class actions lawsuit, claims she was hit with overdraft fees totaling up to $100 in one day in ’09.

- Customer also claims Zions Bank posts debit transactions ahead of deposits in an attempt to capitalize on more overdraft fees.

Overdraft Fee Practice and Litigation:

As an industry banks collected roughly $40 billion per year in overdraft fees alone before July of 2010. During this month legislation was passed which required banks to seek the permission of their customers to enroll them in overdraft protection programs. When the customer enrolled, this would eliminate, among other things, the possibility of charging a purchase with your debit card without sufficient funds in your account.

Because of the recent increase in bank fees by the nations largest retail banks, it’s been suggested both in the media and here at BankVibe.com that many consumers have begun a migration towards credit unions as an alternative. Since credit unions are not-for-profit institutions, they do not engage in profit maximizing efforts. Profits rendered from these institutions are regularly returned to the members in the form of better rates and lower fees.

Roughly 35 class action suits have sprung up around the country centered on a malpractice of overdraft fees since 2010 implicating some of the nations most well known banks including: JP Morgan Chase, Regions Bank, U.S. Bankcorp and BB&T Corp.

Markets get Crushed, Big Banks Follow Suit

Wall Street’s taking another beating today, with the the Dow looking to close down around 4.20 percent.

The roller coaster highs and lows we’ve been seeing appear to be here to stay, and whenever the markets get crushed the major publicly traded banks at least follow suit with equal losses – and in some cases much more.

Current Status of Publicly Trade Banks:

1) Citigroup Inc: (NYSE: C) – Down roughly 7.50%.

With a market cap of $70 billion (and almost twice that amount earlier in 2011) Citigroup is still one of the largest banking institutions in the United States. Thanks to the repeal of the Glass-Steagall Act of 1998, which allowed consumer banks to merge with investment banks and insurance institutions, Citigroup rose to mammoth heights almost over night in 1998. With their current market cap of $70 billion they are just a small fraction of their original size – once controlling $700 billion in assets.

2) Bank of America (NYSE: BAC) Down roughly 5.60%

Even with the help of a $5 billion injection from Warren Buffet at the end of last month, Bank of America still encountered substantial losses today. In fact, they lost more than half of what Berkshire invested in market cap losses from today’s trading alone. And even though Warren negotiated a nice little 6% annual dividend for his holding company, it seems gains from an increase in stock price wont be encountered anytime soon.

3) JPMorgan Chase & CO (NYSE: JPM) Down roughly 5.60%

Looks like JPMorgan Chase will end up with an almost identical percentage loss as Bank of America (although they have almost twice the market cap). That’s a big hit for what Forbes once called the “world’s largest publicly traded company.” JPMorgan Chase controls roughly $2 trillion in assets.

4) Wells Fargo (NYSE: WFC) Down roughly 3.50%

Considering the circumstances, Wells Fargo actually made out alright.

5) US Bancorp (NYSE: USB) Down roughly 1.31%

US Bank is today’s big winner! Down just 1.31% it managed to only lose a half of a billion dollars in market cap. Congrats.

No Bailout for Banks Second Time Around

The FDIC (federal deposit insurance corporation) voted unanimously today to require banks with $50 billion plus in assets to write “living wills to the FDIC” should their institution face the potential of bankruptcy in the event of another financial meltdown.

According to this Associated Press article featured on Yahoo News, “The largest U.S. banks will be required to show regulators how they would break up and sell off their assets if they are in danger of failing.”

On top of this measure, these banks will need to rework their “wills” and send their revisions to the FDIC annually. These revisions will be kept on file and essentially treated as contracts should any of the FDIC-insured institutions begin to show signs of imminent bankruptcy in the wake of another financial crisis.

If the balance sheets and assets of the reported 126 financial institutions participating in this measure are compromised, regulators would then have the power to seize and dismantle the bank(s) that threaten the broader financial system.

Furthermore, the FDIC will also have the power to designate other financial firms as potentially threatening to the financial system and require them to submit plans.

The largest banks affected are Chase Bank, Bank of America, Citigroup and Goldman Sachs.

How much did Banks borrow from FED in 2008?

A report was just issued today on the whopping sum in which banks borrowed from the FED during the financial meltdown of 2008 along with ‘who’ exactly borrowed ‘what’ amount.

Prior to the Dodd-Frank regulatory reform law, the FED refused to disclose the sum it divvied out to our country’s most well known banks, however, this information has now gone public. And the sums are quite staggering! Check out the figures and facts below.

Bank Borrowing from FED:

1) Morgan Stanley — $107.3 billion
2) Citigroup — $99.5 billion
3) Bank of America — $91.4 billion
4) UBS — $77.2 billion
5) Goldman Sachs —$69 billion
6) Deutsche Bank — $66 billion
7) Barclays — $64.9 billion
8 ) JP Morgan Chase — $48 billion
9) Hypo Real Estate Holding — $28.7 billion
10) Societe Generale — $17.4 billion

Apparently there was significant borrowing from foreign banking institutions as well. The Royal Bank of Scotland, based out of Edinburgh, received $84.5 billion while Zurich’s UBS got $77.2 billion. Another noteworthy borrower abroad was Germany’s Hypo Real Estate Holding which received $28.7 billion – a whopping $21 million for each of its 1,366 employees!

More mind boggling facts regarding these loans:

- This balance was more than 25 times the Fed’s pre-crisis lending peak of $46 billion on Sept. 12, 2001.

- If loaned out in $1 bills, the $1.2 trillion would fill 539 Olympic-size swimming pools.

- Federal Reserve Bank of New York staffers in February said the central bank netted $13 billion in interest and fee income from the programs from August 2007 through December 2009.

- Bank of America’s bond-insurance prices last week surged to a rate of $342,040 a year for coverage on $10 million of debt, above where Lehman Brothers Holdings Inc. (LEHMQ)’s bond insurance was priced at the start of the week before the firm collapsed.

You can read more here and here.