Call the bankers' bluff!
Obama's proposed $90 billion tax over 10 years on the largest U.S. banks is a pittance, Bloomberg Business Week columnist Chris Farrell argues, amounting to just 5% or so of the banks' projected profits and bonuses. Jamie Dimon, CEO of J.P. Morgan Chase & Co., who recently whined he's tired of bankers being made out as "pariahs," now warns that banks will just pass on the tax to customers.
That would just open the door to competition, as customers already are looking for any opportunity to defect from the widely loathed big banks, which in their customer-friendly way have jacked up interest rates on credit cards (to 29.9% in many cases) and hidden fees on ATM overdrafts while continuing to withhold funds from creditworthy businesses, especially small enterprises.
There are more than 7,000 banks in the U.S. whose names are not J.P. Morgan Chase, Bank of America, Citi, Wells Fargo and so on. And there are massive non-bank enterprises that would love to bolster their sales still more by obtaining Washington's permission to get into the banking business. As TK writes:
The big banks can try to pass on the tax to customers, but that provides an opening for their competitors, including credit unions, community banks, independent banks, and some online banks. For instance, Arianna Huffington and Rob Johnson of the Huffington Post recently launched a Move Your Money campaign urging Americans to do business with smaller community banks. These smaller institutions won't have to pay the levy, and they can pass on that savings to customers.
For just a moment, however, let's take industry lobbyists at face value. The banks will pass on the cost of this unfair, punitive, vindictive tax to customers. In that case, Washington should call the bankers' bluff by changing the competitive environment. Several years ago Wal-Mart (WMT) wanted to get into the banking business, and the industry opposed the retailing giant's move. But the world is quite a different place now, and opening up the market to more competition for basic banking services, such as checking, savings, and debit cards, could benefit consumers. Wal-Mart, in particular, could bring its monolithic drive for everyday low prices into the basic banking business. All of a sudden people may well ask themselves, "Why should I bank with big, high-fee banks when I can get good service at a cheap price at Wal-Mart?" Why indeed?
Next time he's in Canada, Dimon might want to drop into a Loblaws, biggest grocery retailer in the nation. For some 20 years it's been a major financial player with its customer-friendly PC Financial (for "President's Choice," the label for the chain's extensive, popular line of private-label goods. PC Financial's kiosks, which occupy a tiny amount of space in Loblaws' cavernous superstores, offer basic deposit-taking and home, car and other lending services - the most low-margin but low-risk end of the banking business. And with a lot of customers, even a low-margin business with low costs (rent, power and insurance are free!), it's a lucrative sideline that skims a lot of business from traditional banks.
And Loblaw Cos. Ltd., big as it is, doesn't have anywhere near the million customers a day Wal-Mart's U.S. operation boasts.