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Originally published December 5 2013

US banks may soon begin charging customers to deposit money

by J. D. Heyes

(NaturalNews) Many younger Americans may find this shocking, but once upon a time, banks actually paid you to deposit money.

Money deposited in savings accounts earned a decent amount of interest every month, because it was the bank's way of thanking you for your business; sound deposits boosted a bank's overall net value.

These days, however, with taxpayer-funded bank bailouts and Federal Reserve quantitative easing (QE) - an $85 billion a month boondoggle that is enriching banks at the expense of consumers - the tables have turned.

And now, thanks to another government policy, banks may begin charging you for the hassle of handling your money.

As reported by Britain's Financial Times (FT):

Leading U.S. banks have warned that they could start charging companies and consumers for deposits if the U.S. Federal Reserve cuts the interest it pays on bank reserves.

Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.

Wait - charge people to deposit money?

It used to be the case that government policies encouraged personal savings growth, but this kind of ridiculousness is precisely why Americans increasingly feel pinched and punished by their government.

The FT reported that this warning by bank execs stresses the dangers of one Fed strategy that could be used to offset the "tapering" of the QE strategy that has bolstered financial markets for the past year (now you know why, in a sluggish economy with high unemployment and little real economic growth, the stock market continues its meteoric rise).

"Minutes of the Fed's October meeting published last week showed it was heading towards a taper in the coming months - perhaps as soon as December - but wants to find a different way to add stimulus at the same time. 'Most' officials thought a cut in the interest on bank reserves was an option worth considering," the FT reported.

CEOs at two of the top five American banks said a cut in the 0.25 percent rate of interest on the $2.4 trillion they hold in reserves at the Fed would cause them to pass along the cost to depositors.

Banks said they might have to then begin charging people to deposit money, because taking them in is not free. Banks "have to pay premiums of a few basis points to a U.S. government insurance programme [the FDIC, which insures depositors up to $100,000]," FT reported.

"Right now you can at least break even from a revenue perspective," one executive told FT, adding that a rate cut by the Fed "would turn it into negative revenue - banks would be disincentivised to take deposits and potentially charge for them."

Other bank CEOs said a move to negative rates would cut margins and might even backfire for banks and the system in general, because it could incentivize treasury managers to find higher yielding, yet riskier, assets.

"It's not as if we are suddenly going to start lending to [small and medium-sized enterprises]," said one bank CEO. "There really isn't the level of demand, so the danger is that banks are pushed into riskier assets to find yield."

Upside down policies will cause next bust

The FT further reported:

The danger of negative rates has deterred the Fed from cutting interest on bank reserves in the past. If it were to do so now, it would most probably expand a new facility that lets banks and money market funds deposit cash at a small, positive interest rate. That should avoid any need for banks to charge depositors.

Or not. It all depends on what policies the Fed adopts and what new costs there are for banks that have already been enriched with tons of newly printed cash.

The economic and monetary policies in the U.S. are upside down. Market conditions no longer respond to prototypical supply-and-demand conditions. Markets are being artificially inflated by policy, not by substantive factors like real economic growth.

When national policy forces banks to even consider the notion of charging customers to deposit money, you know it's just a matter of time before another bust.


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