Much has been written about the evils of fractional reserve banking. Little has been written about how we got there, or how to correct the situation.
What is it that the average bank customer wants? I asked this question to a group of community bankers at a conference, some of the answers:
- a safe place to put their money (FDIC)
- free checking
- free check cashing
- cheap loans
- pretty tellers
- good rates on CD’s
- access to lots of ATM’s
Number 6, good rates on deposits is a quickly fading concern of the average community banker, unless of course they have a large number of older depositors who are looking to preserve wealth. The older generations have a different attitude towards savings than the younger ones.
Numbers 2, 3, 7, and to some extent 1 and 5 are key to understanding the American consumers banking mindset. Most people see a bank as a way to facilitate payments, sort of like a public utility. The bank exists to serve the needs of society. In fact some of this mind set is codified into the Community Reinvestment Act of 1977. The public likes free financial services, low rate loans, interest paid on deposits, maximum safety for their money and pretty tellers.
Out of those five desires the only one that hasn’t been turned into a law or other regulatory standard is the tellers with perky tits act. According to industry insiders it came close to passage under
The public has expectations, they get congress to pass a law and then they get to force someone to give them what they want at a lower cost. Bankers may be somewhat boring at cocktail parties, until you compare them to accountants, but they are resourceful when it comes to working the system.
Therein is the root of the situation. Ask yourself which demographic is the largest or at least most powerful banking customer? Who requires the most low cost banking services? Which group most depends on efficient, safe and secure facilitation of payments?
The banker’s dilemma is that he is forced to 1. provide maximum finical safety for depositors (various regulators audit him to ensure this) 2. must facilitate payments efficiently 3. comply with a ton of regulations 4. make a profit. So he begins to work the system and make the system work for him.