(MintPress) – The Federal Reserve announced last week that four banks in the United States, including CitiGroup, SunTrust, Ally Financial and MetLife, failed the bank stress test, revealing that those companies would not be able to handle a severe economic downturn similar to the crisis of 2008.
The report has led some financial experts to believe that banking fees will continue to rise, putting more stress on consumers so that profits can increase and banks can pass future stress tests. Those against increased bank charges, including Occupy demonstrators, agree that with banks coming more concerned with the stress test results, customers are more victimized by the accompanying higher fees.
Following the financial trouble of 2008, the Federal Reserve started conducting annual bank stress tests in 2009 to estimate possible future losses of a similar incident as well as gauge if resources would be available to absorb financial losses over a two-year period. The results from the latest report are the first to be released publicly.
The bank stress test assesses how much money each bank currently has as capital, and how much would remain in a severe financial downturn.
But how do banks acquire their capital? How much are bank fees associated with the stress test? Financial experts agree that in some ways, the two are interconnected.
“New bank fees are related primarily to new banking regulations that have impacted bank revenues,” said Greg McBride, senior financial analyst at Bankrate.com. “The stress tests over the past several years have prompted regulators to require higher levels of capital from banks, and there are a multitude of ways banks can build capital cushions, such as shedding non-core assets, or boosting earnings through things like additional fee income.”
The high cost of banking
Banks in the United States are just like any other business, and strategize in order to make revenue. Gaining profits by increasing consumer fees at big banks affects the 97 percent of Americans who have bank accounts. In 2011, banks made $29.5 billion from overdraft fees alone, down from $33.1 billion in 2010.
When the Federal Reserve Board changed regulations of overdraft fees in 2010 to lower bank fees, banks adapted their strategies in order to keep revenues up. But with banks trying to gain profits in order to remain stable during a hypothetical stress test financial crisis, customers are the ones paying for it now.
With decreasing overdraft fees, banks were compelled to increase charges by $15-20 per month for each customer to maintain profits, which has left customers irritated.
When thinking about how continually promised to do what is best for customers, Jose Bucheli, a graduate student in Albuquerque, N.M., said, “But whenever they have the opportunity, they impose a new fee.”
In 2009, banks profited $32 billion from various forms of overdraft fees. In 2011, that number was down to $29.5 billion. With the loss of revenue from overdraft protection fees, banks need to find other ways to keep money coming in.
In 2011, many banks, including Bank of America, Wells Fargo & Co and US Bank, began introducing new ways to charge customers in order to generate revenue. Each of these ways contribute in growing the bank’s overall capital, which in turn helps give that bank a higher score in the bank stress test.
In fact, the banks that passed the stress test are already increasing their rates. Bank of America recently announced that it is looking for more ways to increase profits by implementing new account options with monthly fees ranging $6-25.
Customers, like Laurie Wittges of San Jose, CA, are struggling to pay the higher monthly fees banks are putting on them.
“There are a bunch of people like me who can’t afford this,” said Wittges, 50. She lost a job as an executive assistant when the company where she worked closed last year.
US Bank is also feeling the need to grow their profit margin. The bank recently increased fees for checking account holders who do not use direct deposit regularly as well as reduced the number of tellers at each location.
Customers changing the bank
In September, 2011, Occupy demonstrators began protesting big banks in the United States and pushed for financial institutions to lower fees. The movement encouraged Americans to take their money out of banks and deposit it into credit unions on or before Bank Transfer Day, November 5.
Ayenay Abye, an Occupy demonstrator at Zuccotti Park, said, “They [the banks] take our money and discriminate against us. It’s important for communities to have control over their own resources.”
In response, banks backed down on increasing debit card fees, and some financial experts gave Occupy demonstrators partial credit for the move by calling attention to customer victimization by big banks.
Even so, the recent stress test has reminded banks that they still need to maintain or increase revenue in order to remain in good standing with the government, resulting in more openly disclosed charges being withdrawn and an increase in hidden fees.