For a company facing as much public scrutiny as JPMorgan Chase (JPM), even the smallest strategic move can ignite a firestorm of speculation about whats really behind its actions.
That has certainly been the case in recent days as the news bounced around the blogosphere that the nation's largest bank had informed small business customers that it plans to ban international wire transfers. In letters to small business clients, the bank also stated that beginning Nov. 17 it will cap at $50,000 per billing cycle how much cash can be deposited and withdrawn via branches, ATMs and other methods. The changes "will help us manage the types of risk associated with these transactions," the bank wrote.
No sooner had word of the change spread than sinister interpretations followed. JPMorgan Chase implemented the controls to "prevent money leaving the country as the U.S. dollar continues to devalue," opined InfoWars, a site popular with conspiracy theorists. The change was "prompting speculation that the bank is preparing for a looming financial crisis in the United States," it said. "This sounds perilously close to capital controls to us," added Zero Hedge.
A more sober examination of the change suggests that the bank's motives were not quite so exotic. Rather, the new policy is part of JPMorgan Chase's program of "simplifying and safeguarding" its operations, according to spokeswoman Mary Jane Rogers. As part of that effort, the bank recently decide to combine a half-dozen or so business checking accounts into three choices. Small business clients who want to make wire transfers abroad and avoid cash activity limits can switch from a basic account to one of JPMorgan's two banker-managed options, according to Rogers.
Funneling clients who want those services into banker-managed accounts will help JPMorgan Chase "know our customer," Rogers says, referencing regulations aimed at preventing banks from becoming conduits for money laundering. Chairman and chief executive Jamie Dimon informed employees in a September email of plans to step up internal controls "around 'Know Your Customer' and transaction monitoring." The move followed its agreement in 2011 to pay $88 million to settle charges involving wrongful money transfers and recent press reports that it was again the subject of further regulatory scrutiny over related activities.
Given todays level of regulatory scrunity, it is a prudent move to push customers who use potentially high-risk wire transfers and large amounts of cash into banker-managed accounts, says Chip MacDonald, a partner at law firm Jones Day. JPMorgan Chase's primary regulator, the Office of the Comptroller of the Currency, declared in September its "heightened expectations" for large banks' internal controls.
"If you have a regulator with zero tolerance" for banks' failure to comply with anti-money laundering measures and the Bank Secrecy Act, "you're going to try to manage those accounts," MacDonald says. "It may mean some people don't get the same service at the same cost, but that's the result of regulation."
The cash activity limits may also be "an efficiency pricing decision," MacDonald suggests. "Any time transfers or cash are involved, there's an AML/BSA aspect, but there's also a pricing aspect... it's more expensive for banks to maintain" the infrastructure to handle a high number of cash transactions.
In addition to reducing risk, JPMorgan Chase may also reap higher fees by moving small business clients into banker-managed accounts. JPMorgan's basic checking account, Total Business Checking, includes a $10 monthly service fee that is waived with a minimum balance of $1,500. Small business clients who want to send money abroad and avoid cash activity limits will have to upgrade to options that require much higher minimum balances in order to avoid monthly charges.
But the ultimate effect of the change may be more symbolic than practical, MacDonald says. "At the end of the day, how many small businesses are making international wire transfers?" he says. "I dont know how many customers this affects... This may be a pragmatic move to help them manage the AML/BSA compliance side."