Signs of the Times

Al Jacobs

SIGNS OF THE TIMESFor those of you who remember how banks operated in the past, you may recall maintaining a passbook savings, or perhaps a money market account. You’d deposit funds into the account from time to time and, on a regular basis, receive interest income. The payout, though never immense, was never insulting. At a typical annual rate of five percent on an account balance of $5,000, you’d receive about $62.50 each quarter; it certainly seemed worth the time and trouble going through the motions.

For reasons most of us never fully understood – myself included – the entire banking industry imploded. Beginning in 2008 many banking institutions, previously believed to be sound, filed for bankruptcy, and within a year the nation’s financial structure disintegrated into shambles. A distraught public called for the federal government to take action. In 2010, Congress responded with the Dodd-Frank Wall Street Reform and Consumer Protection Act; and a recently elected President Obama added his signature to the legislation.

Dodd-Frank contained 2,319 pages of incomprehensible and contradictory provisions. It designated six or eight mammoth banks as the nation’s sole banking combine and, with the benefit of full governmental subsidies, they essentially constituted the nation’s banking apparatus. As for governmental oversight, its provisions included creation of the Bureau of Consumer Financial Protection with authority to oversee anything and everything. It also empowered a ten-member council of regulators to dismantle and dispose of whatever they didn’t like. The authority of the Federal Reserve extended to scrutinize all aspects of banking not otherwise regulated. It also established a wide-ranging set of restrictions on the derivatives market, but inserted countless exemptions which defied specificity. And finally it adopted 243 rules, many not to be formalized until later dates, with some requiring years to be finalized. I reviewed the bill at the time and reported the following:

“I find little of value to recommend Dodd-Frank. Despite the mass of committees, regulations, and procedures it establishes, its practical effect will be little more than intimidation of the industries it’s meant to regulate, forcing them to render lip service to the rules while conducting business as usual as they continue to rip off the public. The sheer magnitude of the measure’s scope will prevent effective application. Only through enactment of simple and well-defined rules with clear enforcement provisions can our government rein in the abuses endemic to the financial system. The bill is so complex, its regulatory effects will be nil.”


It’s now clear banking over the past decade proved to be a disaster for most Americans. Rational mortgage lending became next to impossible, with most community banks forced out of the lending business. In 2010 over 500 such California banks made mortgage loans; by early 2018 only 11 continued to do so. And of equal consequence, the ability of depositors to get a respectable interest return on their bank deposits became equally impossible. The harm this continues to cause seniors trying to survive is incalculable. If you open a savings account with Chase Bank at this time, the maximum annual interest rate you can get is 0.09%. A $10,000 account will pay you 75¢ per month – not enough for a cup of coffee at McDonald’s. However, if Chase covers a $10,000 expense for you for one month on your credit card – at its annual rate of 24.74% – you’ll pay $206.17. Do you see how the slope is tilted? And if you think things will be better by transferring to one of the other banking giants – Bank of America, Citibank, or Wells Fargo – don’t waste your time.

As the slogan goes, nothing is forever. A decade after the global financial crisis tipped the United States into the Great Recession, Congress freed thousands of small and medium-sized banks from the untenable rules previously enacted. In a rare demonstration of bipartisanship, the House voted 258-159 to approve a regulatory rollback that passed the Senate this year, handing a significant victory to President Trump, who promised to “do a big number on Dodd-Frank.”

On May 24, 2018, President Donald Trump signed the rollback. The bill stopped short of unwinding the toughened regulatory regime put in place to prevent the nation’s biggest banks from engaging in risky behavior, but it represents a substantial watering down of Obama-era rules which effectively strangled the banking system. The legislation leaves fewer banks mired in mindless federal oversight, thereby freeing those with less than $250 billion in assets from a post-crisis crackdown they long complained is too onerous. Republican lawmakers and the banking industry cheered the measure, saying it will help unshackle banks – and the economy – from needless regulatory burdens.

If there’s a single indication that banking is beginning to return to rationality, it concerns the interest a depositor can earn on a savings account. Although the major banks persist in paying as close to zero as possible, competition appears to be peeking around the corner. As the smaller banks can once again profitably participate in the mortgage loan field, they need money in their coffers – and thus a justification to encourage deposits. This is done in only one way: offering attractive interest rates to depositors. And it appears certain select banks are offering more attractive rates than we’ve seen for many years. The increases are not dramatic, by any means, and the terms tied to the higher rates are fraught with conditions. Nonetheless the signs are unmistakable. At long last firms are willing to compete – at least to a limited extent – for depositors’ money.

The particular newspaper ad I spotted, with the heading “GREAT CD RATES,” was placed by HAB Bank, with local offices in Artesia California. With a minimum deposit of $1,500, a depositor can obtain an annual percentage rate (APR) of 2.48 percent for a 24-month CD or 2.68 percent for one of 36 months. You might note, HAB is not a California bank. It’s headquartered in New York and is listed as the 38th largest bank in the state of New York as well as the 521st largest in the nation. So, as you see, this is no major banking institution competing for funds … but it’s more than just a straw in the wind. Ads are becoming prevalent, and the rates offered are increasing. Synchrony Bank, an FDIC-insured online institution is now offering a 15-month CD with an APR of 2.75 percent. With a required minimum of only $2,000, it’s available to almost anyone. But for those persons with $25,000 to invest, Banc of California is willing to pay 2.90 percent on an 18-month CD or 3.00 percent for one extending to 24 months.

Admittedly, we’ve not returned to the five percent rate we once enjoyed on a simple savings account, but it seems obvious we’re heading in that direction. Thanks to the federal government’s FDIC guarantee, which the recent Dodd-Frank modifications let remain at $250,000, many a retiree may again come to rely upon this as the bonus they need to augment their Social Security and pension payments … together with any other dribs and drabs keeping them financially afloat. During the past ten years or so we Americans have been deprived of this option, making it tough slogging for many oldsters. Nevertheless, irrespective of the major banks’ desire that nothing interfere with their exclusive dominance of all phases of banking, the changes are clearly in view.

With this said, let me offer a prediction. With the recent relaxation of the Dodd-Frank legislation, together with the desire by the many remaining community banks to resume full banking capability, there’ll be an increased demand for depositors’ funds. And with this demand will come a willingness to offer a fair interest rate to those depositors on both savings and money market accounts … even reluctantly by the major banks as well. And lastly, within a reasonable period we’ll quite likely see a return of the five percent interest rate. The contrived misery endured by the public is nearing an end, if for no other reason than a verification of the previously propounded slogan that nothing is forever.

Al Jacobs, a professional investor for nearly a half-century, issues weekly financial articles in which he shares his financial knowledge and experience. You may view it on


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