Crybaby bankers, when not engaged in weeping over new rules, focus on attacking "shadow banking," whether in the form of payday lending or money funds.
Thus we have the absurd theory that people confuse payday lenders with banks, so banks will benefit when the CFPB cracks down on payday lenders — thereby improving the reputation of “real” banking. Even though real banks make "direct deposit advances" at >100% APR.
Then there's the similarly mendacious claim that consumers and businesses confuse money funds with banks, so money funds should be forced to do less for their customers in order to differentiate themselves from banks.
In her recent column "It's Time for Money Funds to Fess Up About Fluctuating Values" Barbara Rehm quotes, with apparent approval, the statement that "money funds are banks by another name."
Wow. Self-evident, right? Yet, I can actually understand and believe a money fund balance sheet. Just show me one bank anywhere whose balance sheet I could likewise rely upon. They're as transparent as the average Chinese public company.
Consider: commercial real estate in the community banks; liability for fraudulent issuance of securities in the megabanks; and banks' constant howling against mark-to-market — that doesn't increase my confidence in whatever they choose to report. Will I say grace over the examiners', auditors' and rating agencies' judgments on value — despite their recent abject failures?
Much of the attraction of money funds to investors is that they're NOT banks.
No, money funds are not 'banks by another name." They're transparent, while banks are opaque. If money funds need even greater transparency, let's do it. Publish the balance sheet every day online, or every minute. Explain how all assets are valued.
Bank-friendly commentators want money funds to inform investors that they might lose 5% of their balances — or else require sponsors to invest capital to prevent such losses.
What's the average percent loss to uninsured depositors in bank failures? 30%? Or more?
Now let's design the fabled "level playing field." Require banks to repeatedly inform holders of uninsured deposits that they are at risk. (If the technology to identify these people is too challenging, then simply inform all depositors that they may not be fully insured.) Or, how about billboards with a quote from Marty Gruenberg such as: "TOO BIG TO FAIL NO LONGER EXISTS." He's about to give a speaking tour on that theme. Otherwise, we could require banks to hold 30% capital against uninsured deposits.
Sheila Bair doesn't like volatile money slashing around! What a surprise. Then we better prohibit interbank overnight loans, Fed funds. Not to mention reverse repos. Make everyone go to the discount window.
How about the notion of requiring deferral of cash withdrawals? Great! Maybe we should have started with MF Global. But apply it also to bank securities subsidiaries—fair's fair.
And where is it decreed that banks who sucked customer segregated funds from MF Global in its final days should escape loss, while innocent customers suffer? Maybe the reason we can't find out who in MF authorized transferring this money to bank creditors is that the creditor banks did it on their own. Self help, or help yourself.
A renowned banker in his time was Walter Wriston, long-time CEO of Citi's major predecessor. He used this bully pulpit to oppose "fortress banking," namely the notion that banks have a unique franchise and should focus all their energy on preventing anyone else from poaching on it. He saw that fortress banking would marginalize banks, ultimately reducing them to the ring-fenced and homogenized residue we'll soon see in the U.K.
The current attack on money funds is a rerun of a hilarious comedy. When money funds dropped load charges and allowed unlimited checking, banks worried that their best customers would shift their checking accounts to money funds. Horrors! The industry dispatched SWAT teams to state capitals to try to get legislation prohibiting marketing of money funds. They succeeded in 0 states. Their pitch was obviously anti-consumer, and against the public interest.
Adopting regulations transparently aimed at reducing money funds' yields and making them less competitive is likewise a value destroyer.
We'll never know whether our ancestors sincerely believed that "full service banking" was so enfeebled it would be bled to death by Johnny-one-note money funds. Another doomsday that never occurred.
Let's talk about how banks can generate more value for customers more safely, rather than about how to hamstring pipsqueak, shrinking non-bank competitors with mostly institutional customers — whose total profits are a tiny fraction of ours.
The Democrats are throwing one more bone to banks in this election year. Don't choke on it.
Andrew Kahr is a principal in Credit Builders LLC, a financial product development company, and was the founding chief executive of First Deposit, later known as Providian.