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Why companies should have to pay checking account fees, too

December 8, 2014, 9:07 PM UTC
Bank Investor Returns Seen Rising to Most Since 2007 on Test
A woman checks a mobile device as she walks past a Bank of America Corp. branch in New York, U.S., on Tuesday, March 5, 2013. The six largest U.S. banks may return almost $41 billion to investors in the next 12 months, the most since 2007, as regulators conclude firms have amassed enough capital to withstand another economic shock. Photographer: Victor J. Blue/Bloomberg via Getty Images
Photograph by Victor J. Blue — Bloomberg via Getty Images

No more free toasters for corporations, either.

Large companies are about to face the same financial hardship that individuals began to face more than a decade ago: The end of no-fee checking.

According to The Wall Street Journal, a number of large banks are considering charging large corporations a fee for having a checking account. The more money those companies have on deposit at a bank, the more they may have to pay. Why would that be?

The Journal says we should blame regulation. Since the financial crisis, regulators have been trying to make banks safer. And large, uninsured deposit accounts are a risk for banks. If banks lend against those accounts, and a company, or a few of them, move their accounts to a new bank, that could cause a problem. So, regulators are forcing banks to protect against this risk, which is making it more expensive for them to have these accounts. And banks are considering passing along those costs to companies, though most of the costs so far have to do with holding deposits in foreign currencies. Still, the new fees are making corporations, and their lobbyists, upset. The regulations were supposed to make banks safer, not make holding cash more expensive. Another unintended consequence of the Dodd-Frank banking reform bill!

But this may be more of a feature than a bug. In other words, it could be a good thing. Corporations get plenty of benefit from large banks. In fact, one of the reasons bank CEOs like Jamie Dimon argue that we need large banks is that corporations, the banks’ biggest customers, are also getting bigger. But, as we know, large banks can cause trouble for the banking system. But if large companies benefit from banks being big, why shouldn’t such companies also bear the burden of the risk that large banks create for the economy? Or at least more of those costs.

It’s been years since checking accounts were truly free for the average consumer. Nearly all checking accounts pay almost no interest. And plenty have annual charges if your balance falls below a threshold. The average fee for a consumer that uses an ATM machine not run by their own bank is now over $4. In all, banks charged consumers nearly $32 billion in overdraft fees in 2013. And even with no-fee checking accounts, you often have to pay to order checks, which makes it really hard to use your checking account without incurring a fee. What reason do banks give when they have to charge more and more fees? Increased regulation.

But that’s probably not the actual reason. Low interest rates mean banks can’t make what they used to by lending out deposits. For the past few years, the net interest margin—the spread between what it costs banks to borrow and what they make when they lend or invest—for banks has shrunk to an all-time low. What’s more, banks aren’t seeing robust demand for loans. Those two things—lack of loan demand and low interest rates— are what’s really driving banks to charge checking fees to both consumers and corporations.

But if you are a corporation, you can’t really complain about low interest rates. Companies have borrowed more than $1 trillion dollars this year, taking advantage of low interest rates. As for regulation and higher costs (to hold cash!), we can all agree that’s certainly something to complain about.