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Daily Archives: November 10th, 2009

Are banks panicking? I ask this question because the New York Times article, A Squeeze on Customers Ahead of New Rules, points to several bewildering measures (quoted directly from the article) banks seem to be taking:

1. Practices outlawed by Congress: ‘A study by the Pew Charitable Trusts, released late last month, concluded that the 12 largest banks, issuing more than 80 percent of the credit cards, were continuing to use practices that the Fed concluded were “unfair or deceptive” and that in many instances had been outlawed by Congress’.

This is unfortunate as the banks are bring more negative attention to themselves. This is only going to increase the determination of our elected officials to tighted the regulatory environment.

2. Banks are becoming aggressive: ‘As banks have become more aggressive in making changes, lawmakers have accused them of trying to impose rate increases before many of the new rules take effect in February’.

Chasing diminishing profits in this manner is the fastest way to alienate your customers, and ensure sustained negative growth in the years to come. There are many other competitive instruments that can replace credit cards, e.g. debit cards, electronic checks, bill pay, ecommerce services like PayPal. Oh! I forgot the humble paper check.

My bet is that PayPal and similar ecommerce sites will grow substantially from these banking missteps. This will pose further risks if the new ecommerce sites that take advantage of these banking missteps, are based offshore.

3. We don’t sell sweaters: “We sell credit; we don’t sell sweaters,” said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association. “The only way to manage your return is through the price of the product or the availability.”

I don’t understand Kenneth Clayton’s comments about sweaters. Everything is supply and demand. Maybe he is thinking about it from the perspective of the algorithms. Credit card debt is based on mathematical/statistical algorithms and sweaters are not? If that is the case then credit cards are like sweaters when compared to quant trading strategies. Anyone have any idea what Kenneth Clayton was trying to express?

I must say that having worked in financial services for many years I know that financial services companies did attract the brightest and the best, but the recent banking industry responses to the changing regulatory and economic environment bewilders me.


Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position.