Reviews | Your friendly banker

Now is the month of May,
When the merry banks play. . . .
– An old English ballett (slightly distorted)

The pandemic was not the same as in 2008 with regard to banks. Banks remember 2008 because it was the year the federal government and taxpayers came to their rescue when it looked like many would fail due to the 2007 bank liquidity crisis.

Thanks to the Troubled Asset Relief Act (TARP), eight banks survived because the federal government made investments in these banks that were to be paid back to the government in the years to come. As recent events have shown, banks were outraged when the shoe was, so to speak, on the other foot.

In March 2021, Congress enacted the $ 1.9 trillion stimulus package designed to help those affected by the pandemic. It sounded like how TARP had helped banks and some other industries that suffered during the 2008 crisis. Part of the 2021 stimulus package included $ 4 billion in debt relief. The $ 4 billion debt relief was intended to go to black farmers and other minority farmers who, in addition to the effects of the pandemic, have suffered for years from banks’ discriminatory lending practices in their dealings with them. minority communities. According to a New York Times report, the number of black-owned farms in the country has fallen from about one million in the 1920s to less than 40,000 today. The decrease is due in part to onerous loan terms imposed by lenders on the minority community and the resulting high foreclosure rates.

The stimulus money that is to be given to farmers was to allow them to pay off mortgages held by banks or other investors sooner than they otherwise would have done. Given the banks’ history with the minority community and their high foreclosure rates, it surprises the non-banker to learn that the same banks whose practices have harmed minority communities in the past and which have benefited from TARP , would be the banks opposed to the debt relief program. The banks’ opposition to the proposed debt relief is based in part on the fact that banks earn money on the interest they earn when money is loaned to borrowers. They are upset because if the loans are repaid sooner, they themselves, or the people to whom they sold the loans, will receive less interest than they expected when the loans were made.

In explaining how they and their investors will be affected by early repayment of loans, they did not address the harmful effects of their previous discriminatory practices. Instead, they explained that when a loan is repaid earlier under the debt relief program, they, or the people who bought the loans, receive less interest than expected and , therefore, early repayment generates less profit than anticipated. This remains true even though as part of the debt relief program, banks receive 120% of the outstanding loan amount to compensate them for additional taxes and fees they incur due to early repayment.

The perceived negative effect on lost profits resulting from prepayments and the loss of expected income may help explain the treatment of banks of those who have withdrawn more money from their checking accounts than they get. had placed during the pandemic. In these cases, the banks compensated themselves not by bemoaning a loss of income, as they did with the loan cancellation program, but by imposing heavy penalties on those who make more withdrawals than they did. they have in their accounts.

Banks’ overdraft practices were exposed during hearings before the Senate Banking Committee held at the end of May. CEOs of six of the country’s largest banks appeared before the committee in what has become a somewhat controversial hearing.

During the hearing, Senator Elizabeth Warren observed that JPMorgan Chase, one of the beneficiaries of TARP 13 years earlier, continued to charge overdraft fees to clients who discovered their accounts due to the pandemic. She observed that in 2020, the bank earned nearly $ 1.5 billion in overdraft fees. In response, Jamie Dimon, the bank’s chief executive, said banks were waiving fees for depositors who requested them. Apparently, the account owners who incurred $ 1.5 billion in overdraft fees were at fault for not requesting an overdraft fee waiver.

According to Senator Warren, the four banks represented at the hearing collectively generated $ 4 billion in overdraft fees during the pandemic. During the same period, they recorded record profits. In the first quarter of 2021, all previous bank profit records were shattered. They made $ 76.8 billion in this quarter.

Here is what we learned from the above. Bankers have short memories. The pandemic has not affected everyone in the same way.