Was JPMorganChase wise to taunt the regulators with threats of raising fees and prices? If you haven't seen it, the The Wall Street Journal published an "exclusive" story on Chase, in which the bank's head of retail banking warned that "new rules that would cap overdraft and late fees will make everyday banking significantly more expensive for all Americans." Chase will "pass on the costs of higher regulation and charge customers for a number of now-free services, including checking accounts and wealth-management tools, if the rules become law in their current form." I've seen some comments on LinkedIn calling Chase's comments a "media mistake" and others claiming that the result of Chase raising rates/fees would be an exodus of its low- to middle-income customers. Two responses to those comments: 1️⃣ Chase doesn't give the WSJ an "exclusive" by mistake. 2️⃣ Chase isn't worried about losing LMI consumers. Chase's "threats" to raise prices is pretty hollow--they don't offer "free" checking accounts today. Customers can earn their way to the elimination of fees through balance and/or payment requirements. Chase may change those thresholds in the near future. According to the article: "In 2010, after the post-financial crisis overhaul of bank regulations, lenders warned that they would levy fees on debit cards because of a cap on some card charges—but few ended up doing so because consumers threatened to move their business." Huh? Durbin 1.0 erased "free checking" from the slates of the regional and megabanks. Community banks and credit unions clung to their free checking offerings--with negative profitability impacts. The comments from Chase are a calculated move on the bank's part to taunt the regulators and get them to move ahead with proposed regulations. Why would Chase do that? 𝘉𝘦𝘤𝘢𝘶𝘴𝘦 𝘵𝘩𝘦 𝘱𝘳𝘰𝘱𝘰𝘴𝘦𝘥 𝘳𝘦𝘨𝘶𝘭𝘢𝘵𝘪𝘰𝘯𝘴 𝘩𝘢𝘷𝘦 𝘢 𝘥𝘪𝘴𝘱𝘳𝘰𝘱𝘰𝘳𝘵𝘪𝘰𝘯𝘢𝘵𝘦𝘭𝘺 𝘯𝘦𝘨𝘢𝘵𝘪𝘷𝘦 𝘪𝘮𝘱𝘢𝘤𝘵 𝘰𝘯 𝘤𝘰𝘮𝘮𝘶𝘯𝘪𝘵𝘺-𝘣𝘢𝘴𝘦𝘥 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘪𝘯𝘴𝘵𝘪𝘵𝘶𝘵𝘪𝘰𝘯𝘴. There's another possible reason. A recent academic study looked at the impact of fintech, social media, and economic policy uncertainty (EPU) on bank stock prices and found that EPU has the most significant negative impact on bank stock returns. By forcing the hands of regulators, Chase might help to reduce economic policy uncertainty (at least as it pertains to banking), which could have a positive impact on bank stock prices (including, of course, Chase's). In any case, thinking Chase made a media mistake with the WSJ article is a mistake itself. Jamie and Marianne are way too smart to make mistakes like that. For the WSJ article: https://lnkd.in/e_bHGYZ4 To see the academic study: https://lnkd.in/eZ4A38HQ #banking
Regulation always has unintended consequences but those that regulate in the banking world seldom contemplate these. Or perhaps they do and don't care because the master's they are serving will get the results that they wanted. Either way, it always comes back to increased cost for the consumer. It never breaks in their favor.
I've heard her say that the value of the checking account has increased beyond warranting "free" status. She's not wrong. That said, we're sticking with free access, especially for products like ROGER Bank that target underserved communities.
Don Cardinal
2w
Debit card rewards essentially vanished after the Durbin Amendment.
It is a win-win move by Chase. Whether the regulations move forward and they gain market share, or they get pared back and keep revenue, I would never bet against them not thriving in any market.
I agree that this wasn't a media strategy mistake, in that it was intentional. But that doesn't make it smart. I like your conjecture about their motives for doing so, Ron, but don't buy either of them. One additional hypothesis to consider: They want to be on record now saying that "the regulators made them hike prices" so that, when they ultimately do so, the media will reference this article as the reason (those darn regulators) vs. criticizing the bank for it. Finally, I will say it again: Banking doesn't need to be free. It probably shouldn't be. It's banks that painted themselves into a corner with "free checking" in the first place, and then failed to use the financial crisis to reset expectations.
Josh McAfee
2w
It’s a smart strategic play, preempting rule to law in an election year. Chase has enough of a voting base represented in its accountholders that it either positively influences the shift it hopes to see inside the beltway and also staves off tighter regulation. Or, it has already established the spin for why it has to charge more for service if rule becomes law. Explaining it to the media after regs pass is reactive. The approach is a win/win for them.
It’s too embarrassing to tell this Chase lady that her checking and card fee income are in terminal decline given all the other alternatives that are out there today. Nothing she can do to raise fees will change anything.
Jer Ayles
2w
Chase's strategy to raise fees and prices in response to new regulations will disproportionately impact subprime consumers. They will face higher costs for basic banking services, increased overdraft and late fees, and more returned items. As a result, subprime consumers may turn to more expensive alternative financial services, exacerbating their financial instability. This approach may also lead to higher costs for community banks and credit unions, limiting their ability to serve these consumers effectively. Overall, subprime consumers will bear the brunt of these changes, facing greater financial challenges.
Spreading the lost revenue burden from fees that penalize customers for being overdrawn or late to a broader audience is by itself not a bad thing in my view. It could help some customers in distress cure their problems and better balances the revenue streams to more stable customer segments. It will hurt subprime lending, who will be squeezed even future with higher rates and lower than 36 percent pricing. What is ironic here is that in the case of overdraft fees, the customer will likely not save anything, as most banks will tighten pay/return strategies and the customer will be paying the merchant instead of the bank, due to the increase in returned items. Customers will save very little if anything in my view.