Summary
The referred article speaks of the banks - with their backs against the wall - thinking of evolving new rules for the good customers. The concept seems to be to create new rules so that bank earnings increase at the cost of the customer. To my mind this will only make the sterling customer disappear. Also from an accounting point of view it will create unnecessary complications. In this analysis I look at these two aspects.
Analysis
1. The banks are against the wall. Congress is deliberating new rules on interest rates and charges on bank credit. The bailout package (TARP) has put the banks in a vulnerable position. They have to lend to less creditworthy customers.
2. Yet the banks have to continue to earn money for their stockholders and give a return on the taxpayers money.
3.The thinking appears to be to reduce the interest free period on credit cards and increase fees. This is because those who manage their finances properly manage to get cashbacks, airline miles and other free gifts without paying for them. The banks claim that such customers are loss making propositions.
4. It is in fact this class of sterling customer who gives a clean commission income to the banks without endangering their capital. It has always been known that risk and reward are related. Therefore this class of customers being of high quality gives a slightly lower but assured return. The risk here is very contained.
5. By trying to increase the costs for this class of customer the banks would probably only lose the customer. Or it may find that the customer keeps interest free credit balances in their credit cards. The banks in any case will not end up earning much more - because these customers know how to manage their finances.
6. From an accounting point of view increased fees and interest charges would probably lead to disputes on charges and calculations.
7. Also changes in rules would change the fair value of credit card assets which would impact the balance sheet of banks and how their capital requirements are calculated.
8. In summary I would only say that the proposed reported thinking is only going to complicate matters for customers and banks - while probably leading to no greater income for the banks.
