Hacker News Reader

Comment by schnitzelstoat | Hacker News Reader

> The deregulation of the banking system in the 1980s heightened competition among banks. Many responded by raising fees and requiring customers to carry minimum balances. In 1977, over a third of banks offered accounts with no service charge. By the early 1990s, only 5 percent did.

I would think that increased competition would improve conditions for customers?

View on HN

I'm not in finance, but I think the 'deregulation' in question is actually this law: https://en.wikipedia.org/wiki/Depository_Institutions_Deregu... . It 'deregulates' in the sense of making some mergers easier from a regulatory point of view, especially across state lines.

> I would think that increased competition would improve conditions for customers?

It did improve conditions for customers! As an example I currently bank with Ally, free checking account, no ATM fees (on any ATM, in/out network doesn't matter) and pretty sure they have good overdraft protection though I've never checked. Compare that to a place like BoA that has ATM fees, minimum account balances and fees, and while they probably have better overdraft protection than in 2008, it's probably not as good as what Ally offers.

The reason Ally can compete like this is simple, BoA and most other traditional banks have a ton of physical locations they have to pay to keep the lights on in, Ally on the other hand is entirely online. And while it may be nice to have a physical location for "peace of mind", in practice I found that it's usually better when the company (like Ally) puts the money into customer service so the phone gets answered when you call.

Honestly the biggest problem with Ally is that they are still a bit of a "savvy bank", that is if you ask any old joe on the street if they have heard of Ally, they would probably say no. Same goes for the litany of other new banks that have roughly the same business model as Ally. They would all be a great deal for those that are low-income but they aren't in your face like BoA or WF with their physical locations so people usually end up going to the "traditional banks" which are IMO not designed for them.

> the biggest problem with Ally is that they are still a bit of a "savvy bank"

Being savvy is one of the ways that people can lift themselves out of poverty. Unfortunately, there is no way to force people to be savvy, and there is also no way to make regular banks be like savvy banks.

What do you do when you need $10,000 in cash?

Aye, and the Postal Office can also be a solution here. Personnel distribution, processes, etc. would be fairly straightforward to re-implement.

https://www.aarp.org/money/investing/info-2022/restarting-po...

The usps is the only well functioning government organization left and Republicans are set on kneecapping it so they can privatize it

well-functioning? 95% of the mail in my box goes directly to my recycling bin

literally a no-op...junk mail is printed, USPS delivers it against my will, I put it in my recycle bin...another truck comes and empties that bin

this is well-functioning?

Indeed. That they are underfunded and thus need to support the spam mailers is another issue entirely.

But as far as central non-digital services centers go, the USPS is top notch. It can be improved, sure, and it suffers from the same issues many government services handicapped by the misplaced, accumulated "starve the beast" policy cruft. Despite this, it remains a fantastic resource.

I really wish certain political ideologies would recognize when they are shooting themselves and their fellow citizens in the collective foot.

Calling "starve the beast" a misplaced policy is a pretty heavy watering down of how insidious it truly is

To be fair, I'm trying to avoid being heavily political on something that seems like a win-win-win policy for all sides.

The USPS's unique financial burden is that they are forced by congress to pre-fund their pension obligations so they can't pull a Chicago, calculate things based on insane assumptions of returns and go "whoops we're bankrupt" at some unspecified date in the future as many a pension system has done.

In literally any other context you would be cheering this on.

Congress has done a lot of terrible things but the burden they have placed upon USPS isn't one of them.

That's one of the budget issues, yes, but not the only one.

You're forgetting the NIST. They operate at a net profit, selling things like Standard Jars of Peanut Butter for equipment calibration ($1,069 per unit).

There's a cool Veritasium video on it: https://www.youtube.com/watch?v=esQyYGezS7c

Close! NIST is under the Department of Commerce. They do operate with net profit (or attempt to do so). My understanding is USCIS is set up similarly for immigrant benefit processing.

Left unmentioned is that interest rates in 1977 were high (like 8 percent) so there were lots of ways for the bank to turn around and make money off customer deposits, without needing to charge the customer fees.

Since that time, interest rates have steadily dropped and that business model no longer works very well

I'm getting a little off-track here, and had the same reaction as you, but I think in general the idea that "as competition increases to infinity, consumer choice increases to infinity as well" isn't quite right.

I think there's an implicit assumption that as options increase, variability in those choice options offered increases as well, which isn't always the case.

To the extent that the competitors all are constrained by some common variable (a business model oriented around loaned money, for example), they will not vary along some variables, which might result in the absence of some critical choice option.

I guess I'm feeling nitpicky about this but sometimes I think the US really needs some collective reflection on the meaning of competition, who is supplying it (private, public, government, etc.), how it is attained (choice expression through monetary-based purchases or non-monetary mechanisms such as votes) and so forth.

Often I think you can think of government services or regulation as another competitive mechanism; it's just attained indirectly through votes, and might encourage competition in different ways (e.g., either by acting as a competitor directly, as in the case of the USPS, or by changing the constraint landscape as in the case of regulation).

Eh, that's basically moot in the discussion of why people are poor. People have to earn money to put in those accounts. Real wages have fallen for the past 50 years. The barrier to entry for any job has increased (criminal record issues, college, certifications, responsibilities of multiple roles being lumped together), and some classes of jobs (primary and secondary sectors requiring lower education/skill) have diminished.

That downward pressure is from outsourcing.

Unions can organize all they want. Politicians can raise the minimum wage all they want. Those things don't fix the main problem that the making-things-here jobs that support wage increases across the board are absent.

I've always found it interesting that there are politicians that claim to be pro-union and pro-environment, but then also claim to be free trade. Outsourcing means you lose union jobs and they typically end up in countries with worse environmental protections. I've always found it wild how contradictory those positions have been.

Why disagree?

My understanding is that low-fee accounts with low balances have never been profitable for banks. Perhaps they were used as a way to bolster the bank's image and/or as a long-term loss leader to attract customers who might eventually become profitable. As long as a bank has few competitors and those competitors are also subsidizing unprofitable accounts then everyone can afford to do so.

But this is an unstable equilibrium.

If competitors focus on attracting more profitable customers then I'd imagine that this subsidy becomes unsustainable as unprofitable customers migrate to banks with lower fees and minimums and profitable customers migrate to banks with higher rates. (Which those banks can afford to pay because they are no longer subsidizing as many unprofitable customers.)

First thought is that bank’s make their money from loans. As such the primary way they attract their actual customers is to keep interest rates as low as possible. Second thought is that the reason they want people to store their money with them is so they have more money to loan out. This means that the class of people who store little money with them, especially the people who are constantly near zero, are essentially using the services without providing a benefit to the bank in return. As such, increasing fees on those people would allow the bank to turn more profit without negatively affecting their actual business, or maybe even let them have slightly lower interest rates than their competitors due to a secondary income stream.

Or TLDR: People who don’t store much money in their bank account aren’t customers the bank wants if we ignore fees.

"deregulation heightens competition" is corporate lobbyist speak for "take power from the government of the people, by the people, for the people (supposedly) and give it to existing large corporations to be used against employees and any small competitors that offer things people actually want".

It's because banks don't make any money off of customers with low balances (and therefore don't really care whether they are customers or not).

Reply on news.ycombinator.com