Consumers Needing Fast Cash Still Can’t Rely on Banks
Demos’ financial report
Consumers in need of fast cash may be upset when they hear about bank performance. Coming soon is a report of fourth-quarter earnings from major banks and the economy is bracing for the news. Experts predict that most big banks have done pretty well for themselves in the past few months and that includes the banks that were hanging most precariously on the brink of bankruptcy. President Obama is pushing to tax the banks that benefited from the stimulus to assure the billions in taxpayer money they collected are paid back. Banks are not in favor of the move, of course, and resistant to the process.
Demos, a policy group, is claiming that banks are already back to the same high-risk activities that got them into trouble in the first place. Lending to sub-prime borrowers and creating outlandish loan products contributed to creating the biggest recession since The Great Depression of the ’40s. This time, however, banks are using taxpayer money to continue the questionable practices.
Big banks are weighing in
Bank of America, CitiGroup, JP Morgan Chase, and Wells Fargo, along with Goldman Sachs and Morgan Stanley, all benefited from the federal bailout. They are showing a good improvement in performance, but the Demos study claims the reason is a complex one. Though performance is up, the reason is because of higher trading revenues and not due to more lending. An example of the problem can be seen with JPMorgan Chase. The bank’s operators announced that 2009 brought in net profits of $11.7 billion, which is more than double the revenue of 2008. It was the trading division that brought in the revenue though, and not lending. Increased lending is what the government was hoping for to spur consumers into spending.
Bank performance versus consumer satisfaction
When banks release their new performance reports, most likely they will have all rebounded since the recession. Part of the criticism is that consumers haven’t been able to rally just yet. The unemployment rate is still high. Home values are down. Jobs are still sparse. Fast cash through loans is nowhere to be found. The climate of the everyday market is vastly different than the big bank world. It’s the contrast that is most likely to irk consumers and consumer-centric organizations. Without some considerable improvement in the job market, it could mean a difficult time for banks to rally new customers. They may be viewed as large organizations that are focused on their own growth, with little concern for consumer’s financial survival.
Part of the lending problem
Though the government and consumers are hoping for an increase in lending, that doesn’t seem to be happening in the market. The biggest issue is the near-zero percent interest rates are making it more profitable to trade with the money than lend it out. That is why despite record-low interest rates and heightened bank profits, many businesses and consumers still can’t get approved for a loan.
The banking market in the future
As the market levels itself out, more and more studies are going to be done on bank performance and practices. With consumers struggling to find fast cash through lending, it’s going to be crucial that banks start playing along. Rather than focusing on profits, they need to begin focusing on the consumer. Without some increase in lending, depression of markets and lack of growth will continue indefinitely.