U.S. Banks Shun The Word 'Free' These Day

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Includes: BAC, JPM, USB, WFC
by: Suman Chatterjee

Wells Fargo (NYSE:WFC) seems to be using clever maneuvers to maximize the earnings from the existing customers. Back in 2010, the company started charging for the opening of checking accounts by new customers. The checking accounts, at that time, were still free for the existing customers. Last year, it started charging a nominal fee for a group of existing customers, primarily from the Western states, for the maintenance of the checking accounts. And as declared by the company, it will start charging $7 for the checking accounts in six more states.

But Wells Fargo isn't the only one that has recently started charging for the checking accounts. Even U.S. Bancorp (NYSE:USB) already hinted at charging for the debit cards soon. Even Bank of America (NYSE:BAC) and J.P. Morgan Chase (NYSE:JPM) are looking at the same direction: start charging free accounts.

Why such a change?

Recently, Obama proposed the "Volcker Rule", which will pose a crippling effect on the profit-making business of the banks. This has had a drastic effect on the banks, which literally initiated changes to their business procedures literally overnight.

In fact, the apparition of new profit-crimping regulation battered bank stocks on the same day of the news getting out, dragging down the Dow Jones Industrial Average by 213.27 points, or 2%, to 10389.88.

Some financial stocks sank by more than 5%, though they recovered slightly after Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said the new rules would take effect over three to five years, not immediately. J.P. Morgan Chase & Co.'s stock was the hardest hit, sinking 6.6%.

It must be noted, J.P. Morgan Chase was never in favor of "free accounts". Well, I do somewhat support the opinion that if you are providing GREAT service, you should charge for it.

Possible After-effects

But, there are a couple of things that still need to be thought about, before taking these decisions.

Is the US economy really booming right now? Then why would such a step be taken, when it can clearly impede the recovery process? Yes, the government might extract a bit more income from the banking sector, but what if more people stay "unbanked" or invest in some other profitable avenue? It's balancing out in the end, and the results are definitely not pointing in a healthy direction.

In fact, there's no reward for maintaining checking accounts anymore if they don't really offer any other benefits, apart from transactional benefits. Remember, it will just be a "play of the price" in the end.

It is like wearing a worn-out coat to cover up a torn shirt. I really don't know, what the hell is going on with the US economy.

The Great Depression was also a result of one mistake after another, and presently, we see the same scenario. Let's hope we don't end up in another recession anytime soon.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.