By Sarah Morgan
Big banks shouldn’t have to raise fees on customers to meet new international rules, say consumer advocates, but they may do it anyway.
The Federal Reserve is likely to require U.S. banks to live up to requirements laid out by global regulators in Basel, Switzerland that would force them to raise more cash to limit exposure to value lost by their riskier assets. Because raising capital costs more money for a bank than bringing in new deposits, banks will have to raise fees for customers or lower the interest rates they pay on savings accounts, says Keith Legget, a senior economist for the American Bankers Association. Consumers could end up paying more interest on loans, too, Legget says. “The new, higher capital requirements will cause less credit to be available. As you restrict the supply of capital, this will exert upward pressure on interest rates,” he says.
But consumer advocates say that it will be tough to pin any changes in fees or interest rates directly on these new rules. “Fees have been going up for 15 years anyway,” says Greg McBride, a senior financial analyst for Bankrate.com. The new rules might be one more reason to increase fees, but fees have been steadily marching up because interest rates have been volatile for several years and banks are looking for another, more stable source of income, McBride says.
Similarly, if banks need to hold on to more capital, they might be slower to make new loans, and might restrict their lending to borrowers with high credit scores — but that’s also already happening, McBride says. “It’s just a continuation of the trends that are already in force,” he says.
The banks have never really needed an excuse to raise fees, says Linda Sherry, spokeswoman for Consumer Action. “Every time the wind blows a certain way, banks raise fees,” she says. “The dire predictions the industry likes to make, take them with a grain of salt.” Kathleen Day, spokeswoman for the Center for Responsible Lending, agrees. “Banks’ knee-jerk response to common-sense rules always is to say they will raise costs for consumers. The opposite is true,” she says. “Making sure banks are financially strong and well run reduces costs long-run.”