Industry analysts predict a 20% pretax windfall for big banks if President Trump’s deregulation proposal is implemented through legislative and regulatory means. The six largest banks will profit even though deregulation could make them less safe, heightening taxpayer risk. Meanwhile, a Gallup poll reveals that consumers’ trust in banks remains below 30%.
Once again, big banks are displaying an unparalleled focus on self-enrichment, diverting focus away from their customers. Once again, big banks have turned to lobbying muscle to enrich their bottom lines instead of doing a better job in offering products and managing client relationships.
Consumers may rank banks near the bottom in trust, but bankers seek to be among the most popular — or at least most visible — industry groups on Capitol Hill. Last year, commercial bankers spent almost $60 million on lobbying. Mortgage bankers ponied up another $12 million. From the beginning of 2015 to the end of 2016, the financial sector spent $2 billion on political activity, including $1.2 billion in campaign contributions — more than twice the amount given by any other business sector, according to a study by Americans for Financial Reform. This amounts to $3.7 million per member of Congress, which is the most for any period (AFR analyzed spending data going back to 1990). Wells Fargo, Citigroup and Goldman Sachs each spent more than $10 million last year.
Besides their lobbying prowess, bankers have ensconced themselves into the highest levels of power in the Trump administration, similar to previous administrations. Candidate Trump blasted Hillary Clinton for her paid speeches to Goldman Sachs and Sen. Ted Cruz’s connections to Goldman. But in office, President Trump has continued the tradition of hiring Goldman alums for top jobs. Treasury Secretary Steven Mnuchin, Chief Economic Adviser Gary Cohn and Deputy National Security Adviser Dina Powell all worked there (not to mention former chief strategist Steve Bannon).
Big banks’ power and influence in Washington ensures that the interests of Wall Street are front and center — and, as in the past, their access is often detrimental to community banks.
It is no accident that the market share of the 100 largest banks grew to 75% in 2016 from 41% in 1992. While Wall Street lobbyists and presidential advisers have consistently served up legislative initiatives under the guise of encouraging economic growth, those initiatives enable big banks to gobble up community banks. For example, in 1994, Congress passed the Riegle-Neal Interstate Banking and Branching Efficiency Act, which removed barriers to banks operating across state lines. But, armed with deep pockets and economies of scale, the biggest banks were the primary beneficiaries as community banks continued to lose market share.
The Dodd-Frank Act, meanwhile, grew out of the Great Recession to protect the economy from the collapse of "too big to fail" banks. However, it is community banks that are sinking under the weight of Dodd-Frank’s heavy regulatory burden. More troubling, recent efforts to undo Dodd-Frank would mainly benefit megabanks. Not too many community institutions would benefit from removing limits on Wall Street traders that contributed to the economic crash, which is a provision in the pending Financial Choice Act.
Community banks may side with larger institutions in opposing policies of the Consumer Financial Protection Bureau. But, consumers do need protection — from the big banks like Wells Fargo and JPMorgan Chase. They are the institutions overcharging minorities, setting up phony accounts and getting fined hundreds of millions of dollars in penalties. Meanwhile, community banks, which offer the flexible lending programs small businesses need, struggle to survive.
Instead of channeling money to inflate the already bloated coffers of incumbent congressmen and hurting community banks in the process, big banks should tackle the thorny issues that contribute to low customer morale. For example, average checking account tallies 22 separate charges; it is not surprising that service fees are the primary reason customers switch accounts. Some creative banks have nearly 50 fees. Generating 8% of their revenue from a source their customers dislike is not a healthy, sustainable situation. And while commissions boost revenue, the process of aggressive cross-selling tactics is invariably damaging banks’ reputations by displaying a self-interest that often conflicts against the best interests of the consumer.
It is unfathomable to me that the five largest banks, with individual resources employing hundreds of programmers and annual IT budgets of $9 billion, have not yet designed programs and services that engender trust with customers. It is high time that big banks stop spending so much on lobbying and actually deliver products and services customers want.