Wells Fargo stops all lines of personel credit....

[PandaBear]

It's a mystery to me how banks make money in this era, where all their loan activity is. It doesn't seem like banks like Wells Fargo loan to businesses much anymore, at least not small to medium sized businesses. And now the end of the personal lines of credit further removes them from the classic role of a bank.

Banks used to issue their own currencies up to about the early 1900s, mostly in the 1800s. This was in the US, Europe, really everywhere. In the US the banks were fundamentally sabotaged by requirements that they buy state government securities, bonds, etc. issued by the state they were in. This distorted the industry and compromised banks' ability to make rational investment decisions, forcing them to buy subpar government instruments, and this contributed to their instability. Banks in Scotland and Hong Kong still issue their own private currencies, but they're based on the core government currency, not truly private or free market.

Without issuing currencies, modern American banks seem strange to me. They're like branches of the Federal Reserve, just with some minor differentiation on how they package their accounts, features, logos and color schemes, etc. They all get money from the Fed via mechanisms I've never fully understood, they have reserve accounts with the Fed that seem like arbitrary Monopoly money, and so forth. What makes one bank more profitable than another is a mystery to me. The mortgage crisis exposed some ways they made money, but that seemed like a fluctuation, not a normal forever thing. It will be interesting to see how banking evolves from here. I'd love to see more innovation and fewer barriers to entry. These big incumbents have coercive monopolies because it's almost impossible for anyone to start a bank in the US. I'd also like to see private currencies, with a lot more transparency about supply – there's no compelling reason to have permanent, chronic inflation in prices, and lots of reasons to prefer a stable or slightly deflationary currency.

Bank just package their stuff and sell it as investment product to someone else. They like to make a cut of something they borrow from someone and then lend to others, then send it off when things blow up. This is the main reason I do not like to buy investment products although I sort of have to with 401k.

Oh, the Fed print far more than you deposit, and the international market buy far more investment products than your petty IRA and 401k with contribution limit.

 

[alarmguy]

I don’t know anyone bashing anyone.
I am not a blame your troubles on

Home Depot parking lot, In and Out burger, etc (of course it is around where I am at). Let's put it this way, "America" means nothing without factoring in local cost of living, and college degree is worthless unless it is something useful like STEM, legal (actually they aren't that useful these days), medical, etc.

Folks, let's stop bashing each other about fair wages because it means nothing without knowing cost of rent locally.

I don’t see any bashing going on.
I just don’t subscribe to blaming other people for my problems if you want to live free.
We are all in charge of ourselves, let’s not blame others.
Same goes for the “rent locally” if you don’t like it or can’t afford it then look in the mirror and ask why?
Then do something about it or move!
Obviously other people can afford it or it wouldn’t cost what it does.

 

[Titanium]

Can't answer where Wells Fargo makes its money,

But Citibank- charges many consumers 29 plus percent interest on the credit card, gets one or two percent from most every purchase on that consumer credit card. Then they charge late fees, over the limit fees, and who knows what else. Bet they use fuzzy math to compute the interest so it is actually even higher. The American consumer involuntarily must back Citibank... and Citibank borrows from the fed at likely one percent.

Gets no better than that for a big bank...... I have zero issue with what Citibank charges- except that the American citizen is required to back them. No way should these bankers make eight figures annually, while the USA consumer backs the banks they lead.

Good points. I forgot about credit cards.

I don't like the network effects squeeze play the banks pull on merchant fees for credit card transactions. I mean Visa and Mastercard mostly. Once they got to a certain size, they could charge exorbitant fees totalling 3% or more. Merchants are compelled to play ball because of the network effects – they'll lose sales if they don't accept these cards. And then Visa and MC also try to prohibit merchants from charging more for credit card transactions to offset the fees, so they're locked in on both ends.

Then the only move the merchants have is political lobbying, resulting in things like the Durbin Amendment, which caps debit card fees to much lower rates than credit cards: 0.05% + 21 cents per transaction (it only applies to cards issued by medium to large banks, not tiny ones with less than $10 billion in assets).

I don't like government interference in and coercion of economic life, especially all the fighting and special interest lobbying that sprouts when you give a government that kind of blanket power over economic affairs. But I also don't like these corporations that exploit network effects and create a lot of friction and cost in the economy.

I guess one could argue that to achieve these network effects a business had to create value and offer a service or product that people want to begin with. Otherwise their network or monopoly could not exist. But there's still something off about it, and when they try to prevent merchants from offsetting the fees it looks real shady. I'm struggling because I don't have a clear philosophical framework for this kind of issue. I don't like mass coercion, like government regulations that are not in response to criminal coercion or fraud, but I'm not clear on whether these bank network effects are themselves coercive in a real sense, or problematic in another way.

There's also some research that suggests that lower income people are subsidizing the perks enjoyed by premium cardholders, like the rewards programs, cash back, miles, supplemental product warranties, travel emergency services, etc. The reason is that those higher end cards actually trigger higher fees for the merchant. That's how Visa and MC pay for the rewards. e.g. The interchange rate for Visa Signature Preferred cards at restaurants is 2.70% + 8 cents, but for regular Visa cards it's only 2.20% + 8 cents. (There are more fees beyond interchange, so the total percentage will be higher.)

Since lots of customers use these sorts of premium rewards cards, it means merchants' costs are higher, and when they build those costs into their pricing the result is slightly higher prices than if those premium cards didn't exist. Since they tend to set one uniform price for a product or service for all customers, everyone is shouldering those higher prices, including lower income people... And of course the fact that the credit card networks always try to block merchants from charging extra for credit card transactions, this further locks in the "one price" custom, and that price will be higher than if those fancy cards didn't exist. (Whether credit card networks are able to block merchants from charging extra varies depending on the jurisdiction, country, etc. Some countries and states ban those bans, while others ban merchants from charging extra.)

It's an amazing effect, and unusual.