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Lets Have Bankers Call a Spade a Spade

Most banks nowadays earn much, if not most, of their money from "fees." But those are strange sorts of fees.

An ordinary fee is a payment for services rendered. There doctor's fees, lawyers' fees, etc.

Banks, on the other hand, collect fees for NOT rendering services. Such as "overdraft fees." Or "late payment" fees. Other "fees" are levied for not having a large enough bank balance. You would think that the bank would be happy to have the money to lend, except that they don't make much of their money from lending any more. These are "fees" for what the customers DIDN'T do, as opposed to for what the bank did. So let's call them by their right name--penalties.

The concept of penalty income has two corrupting influences on banks. First, it emphasizes their RIGHTS vis-a-vis customers instead of responsibilities, giving the banks an unwarranted sense of entitlement: We are ENTITLED to make money off our customers, whether we provided service or not. The second is that it causes banks to create a slew of new products that are booby traps for customers. More on this in another post.

Commercial banks used to make the bulk of their money by lending to corporations. Not any more, they don't. That business has gone mainly to bond underwriters, i.e. invsetment banks, and to foreign banks. So banks are increasingly relying on consumers for new sources of income.

If banks had to report that a large part of their earnings come from "penalty income" as opposed to "fee income," they wouldn't be so eager to levy such penalties. All the more reason to force banks to make such a breakdown.