Initially, banks were known to be in the business of making loans and gathering deposits. They were held in high esteem in the eyes of common man as well as the federal government. Years before the economic meltdown that occurred in 2008, bankers exchanged their slow but steady business in order to obtain financial gains and trading profits at a faster rate. But, with the changing economy, political policies, federal regulations, and banking regulations in the United States, today you find that banks are now in the business of making trades and collecting fees.
Traditional banking plays a vital role in the nation’s economy. Banking used to make the society wealthier over time by collecting idle cash and lending it to borrowers who can engage it in productive work. Though this is risky business plan, considering the smaller foundation of bank capital used to support an enormous structure of deposits and loans, the onset of federal deposit insurance and closer inspection lead to stability for decades until the latest economic meltdown.
Today, being an efficient American banker means living under the thumb of banking regulators who follow banking regulations and demand that you to lend money at significantly low rates of interest, while trying to stay away from making bad loans which would reduce the capital and engage the need of a federal bailout. Bigger banks have greater pressures when handling finances as the risks increase.
For several banks, depositors have become a nuisance, unless its a huge deposit and a reasonable amount of money is charged for it. A responsible banker needs to track their money and hold a part of it in cash in order to meet the withdrawal demands. When you need to lend money, it is quintessential to generate reams of paperwork in order to show it to your seniors. If things go unfavorable for borrowers, you may be accessed for predatory lending.
Today, the post-recession economy in the US is having issues gaining steam. One of the major reasons for this drawback is the anti-lending bias in the banks these days. But, lately, banking regulations and regulators have started to pressure banks to surrender a few of their newer revenue sources. This inspires banks to find new and productive techniques to make money in the short term, but these demands may lead the banks back to practicing their old techniques of managing business for better profitability.
One of the major areas where banks experience restraints in an effort of generating fee revenues is overdrafts. Banking regulations in the United States issued by the Federal Reserve Board in 2009 prevents banks from generating debit card or ATM withdrawal charges. Banks have the right to charge customer fees on the overdraft only with the consent of the customer. Since several individuals are liable for these charges, research reveals around 15 million Americans overdraw their bank accounts more than ten times every year, each time paying overdraft charges ranging from $25 to $35. This enables banks to incur a substantial amount of revenue and growth.
Following banking regulations and federal government’s modifications in these regulations will enable banks to prosper and grow considerably. It ensures depositors and customers financial security which allows a greater number of people to rely on banks to secure their finances.