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Big Banks Back to their Bad Ways

After receiving billions in government bailout and being humbled for a few months, it seems that banks are now back to their old bad ways. But probably the most grating result of the previous year’s financial crisis was that credit became harder to get for individual Americans and businesses.

Contrary to popular perception that banks have become too “weak” because of the crisis, they have actually grown, perhaps at the taxpayers’ expense. For example, Wells Fargo & Co got Wachovia Corp., JPMorgan acquired Bear Sterns Cos, and of course the infamous Bank of America, which got Merrill Lynch & Co. Over the short term, these acquisitions might have helped alleviate financial and political pressure. However, with too much power vested in too few banks, problems are bound to occur in the future. In addition, “bigger” isn’t necessarily better for the end-consumers.

It’s simply part of how the market works. If the big banks already have significant market share, they have “less incentive” to offer longer credit terms, lower fees on opening regular accounts, and they won’t offer high savings rate. There is simply no reason for them to do that. Washington’s “too big to fail” theory might have worked backwards.

Average Americans today might already be experiencing these consequences, but they have not yet experienced the full brunt of it. Taxpayers are being treated as if they’re begging for money. And indeed, it seems that way because they don’t have a choice. Banks today are making more money. However, they aren’t really making credit available to those who need it. This tactic prolongs the recession and is bad for everyone.

Will this situation improve in the near future? It isn’t very likely. If anything, it might even become worse. The big banks are still trying to recoup their losses. They are likely to increase credit card fees, bank account fees, and shift their risks using high mortgage rates and lower credit limit to the consumers. The situation looks pretty grim. And the government needs to do something to right its wrongs.

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