Friday, November 18, 2016

This Week in Bank Failures

As the week began, Wells Fargo was basking in the lack of attention after the presidential election had pushed the bank and its ghost-account scandal out of the headlines. The smug feeling lasted only a few days, though, because then the bank had to announce operational results that included the shocking figure of a 44 percent decline in account openings compared to the year before. Part of this decline may be attributed to the hit that the bank’s reputation has taken, but most of it must be due to the changes in the bank’s marketing practices. Now that the bank is not so aggressive in pushing new accounts on its customers, it turns out the customers don’t really want new accounts. The ghost accounts, created without customer knowledge or permission, were just one face of a much larger problem. Even when the bank’s customers agreed to open a new account, half of the time, it was an account they neither wanted nor had any use for. The bank was not serving its customers so much as turning them into bit players in its twisted numbers chase. With the fire hose turned off, Wells Fargo customers are more than happy to step out of that game. In a way, the saga is a depressing commentary on how much consumers are willing to put up with in a system that gives them so few options.

Could the new Congress pass a bill forcing Wall Street out of the banking business? It seems possible. There is considerable support among liberals in both houses for a legal and financial wall separating investment banking from deposit accounts. With the incoming administration also supporting that idea and Wall Street throwing much of its support behind Democrats in the latest election, it seems possible that Republicans too could be persuaded to support a bill that would have the effect of scaling back Wall Street’s territory.

A currency recall in India is a fiasco, with the government ordering a surprise recall of bills accounting for around 90 percent of cash in circulation. The recalled bills can no longer legally be spent, yet the government has printed only enough replacement notes to cover around 3 percent of the recalled money. In a country where 98 percent of retail transactions are paid in cash, consumers and businesses alike are unable to do their shopping. ATMs don’t work with the new bills, even if the banks could get them. It is expected to take four months to convert all the ATMs and supply banks with enough currency to complete the replacement of the recalled currency.