My last post talked about how Geico decreased my credit line. An article appears today in USA Today entitled "Credit slashed for responsible borrowers"!
From a bankers perspective, I understand entirely why this 'slashing' is required. Accounts issued to those that don't use them, or to those who avoid fees and other charges are simply unprofitable. It just doesn't make any sense to maintain accounts that effectively cost the business money.
From a consumers perspective, I feel quite defensive about this. First, it can and will impact credit scores (see my last post where I write about this). Second, I feel as though something of mine has been taken away from me un-rightfully, regardless of what the fine print might say.
Seems to me that the banking systems needs to find other ways to support their overhead. Perhaps they may consider reducing their overhead! Executive payroll, even in your small community banks and credit unions might surprise you!
Instead of looking for additional income from creditors, why not fee other transactions? Just for example...
Payroll expenses could be reduced by training customers to use automated systems for routine transactions rather than seeing a live person (teller). How? For every teller window transaction that could have been conducted at an ATM or online, a fee would be imposed that is not imposed had the automated system been used. One would pay extra to talk with a teller. Why? Because tellers cost more! Eventually, people would come to use the less expensive technology, thereby reducing the bank or credit unions reliance on human resources, ultimately reducing overhead expenses.
Would this work? Sure, it already does. When was the last time you talked with a teller when you stopped into ING Direct?
Friday, April 3
Credit Cards and Bank Tellers
Tuesday, March 4
Should you take your $$$ and run?
During recent testimony, Chairman Bernanke predicted that there could be a rise in the failure rate of small banks. This comes because many of these small banks may have invested in areas where prices have fallen dramatically and are suffering losses associated with the subprime mortgage fiasco. What happens to the money that you have on deposit in these banks if they go belly up?
Federal Deposit Insurance Corporation
The FDIC protects your deposits up to certain limits should the bank fail. So, you don't need to rush out and withdraw you money from these small banks. However, you need to make sure that your deposit accounts are appropriately structured and that the bank IS in fact insured.
Look for this logo to be sure that your bank is insured:
Types of deposits that are insured by the FDIC are; checking accounts, savings accounts, trusts, CD's, and, IRA's. Note that the maximum insured balance per account is $100,000 (Federal Law provides up to $250,000 coverage for certain IRA's). So, if you have a savings account with $137,000, only $100,000 of it is insured, the remaining balance is at risk.
How do you protect the entire amount? This from the FDIC Publication Your Insured Deposits "Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured."
There are eight ownership categories recognized by the FDIC which have certain requirements that will allow you to insure more than $100,000. Click on each for more information.
* Single Accounts
* Certain Retirement Accounts
* Joint Accounts
* Revocable Trust Accounts
* Irrevocable Trust Accounts
* Employee Benefit Plan Accounts
* Corporation/Partnership/Unincorporated Association Accounts
* Government Accounts
Tuesday, January 29
Banks vs Credit Unions
Great vid from Youtube! This gal did a fantastic job!
Click the word Comments below to post your comments!
Tuesday, January 22
Blame it on the banks!
I read an article by Roger Lowenstein in the February 2008 Smartmoney Magazine called Blame the Banks. Roger opines that banks are the blame for the subprime fiasco. He feels that the bankers acted more like stock brokers instead of lenders. His arguments are compelling.
"... they played a dangerous game. They issued and repackaged loans on the basis of whether they could be resold-not on the basis of wheter the loans were any good. They forgot they were bankers and acted like traders. A Banker loans money with the expectation of getting it back. A trader merely hopes to fob the loan off on the next guy."
Why did the banks do this? Simple answer- PROFIT!
Bankers are struggling to get and keep deposits. What is the one thing that they can do to almost guarantee that we'll deposit our money with them? Pay us high yields for our deposit accounts. Where does the money come from to pay us these high yields? Fee income and interest income earned from loans.
How do bankers get loans to earn income? By lending money at low loan rates.
In a market that requires the paying of high yields to attract deposits and low loan rates to attract loans, it is very difficult to earn a profit for the stockholders. How can you pay 5.00% for a 5 year certificate of deposit, and make a 15 year mortgage loan for 5.25% and not go broke? One way is by selling off the loan and re-investing the cash into another loan. A money recycling mill. Each time the money is cycled through, it comes back with a little more. The more your recycle, the more money you have.
I agree with Mr. Lowenstein, bankers should stick to banking and come up with another way of satisfying their stockholders, as long as it doesn't involve charging their customers a fee every time they exhale. Maybe the bankers should take a look at the way credit unions operate; non-profit financial cooperatives. I wonder what this subprime mess would have looked like if banks were more like credit unions; would it even have happened?
