Maybe That’s The Point

Banks are urging some of their largest customers in the US to take their cash elsewhere or be slapped with fees, citing new regulations that make it onerous for them to hold certain deposits.

The banks, including JP Morgan Chase & Co, Citigroup Inc, HSBC Holdings PLC, Deutsche Bank AG, and Bank of America Corp, have spoken privately with clients in recent months to tell them that the new regulations are making some deposits less profitable


The change upends one of the cornerstones of banking, in which deposits have been seen as one of the industry’s most attractive forms of funding….

“Loanable funds.” That’s what those deposits are called in economist circles. The funding in question is a major source of the monies that banks lend on to other customers for the latters’ investment goals—investment in things like capital plant improvement (new factories, new equipment to put in existing or new factories, computers for a company’s IT infrastructure or for employee productivity improvements), R&D, even short term to make payroll until payments for booked sales arrive.

The regulations in question here are intended to make our banking system “safer,” but this is a holdover from the government’s (read: regulators and remaining politicians) stinking…panic…over the Panic of 2008.

And as is usually the case with (especially big) government intrusions into our marketplace, there are unintended consequences.

Or maybe these aren’t so unintended. Recall that, for all the cover “panic” provides for suboptimal behavior, these are extremely intelligent men and women. It’s hard to believe they couldn’t predict these consequences: it’s Econ 101 that if you raise the price of something, you’ll get fewer buyers for it.

Also, keep in mind that the private sector competes with government in the marketplace.

Finally, keep in mind that fundamental tenet of the Democratic Party, the dominant party in American politics during the era when this sort of regulation was proselytized and expanded: Americans are stupid, and it’s OK to lie to us. For our greater good at the hands of our Betters. A step in this is to bring our financial system, beginning with our banks, to heel.

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