President Obama's Bank Levy Program Cannot Be Good for Bank Rates
January 14, 2010
President Obama intends to impose levies on up to 50 large banks that benefited from taxpayer bailouts.
This may be a good idea for other reasons, but it's very difficult to see how this will not be a negative for CD rates, money market account rates, and savings account rates.
Jamie Dimon, CEO of JPMorgan Chase, said it best when testifying before Congress about this matter:
"All businesses tend to pass their costs on to customers."
One of the prime ways to "pass on the costs" of new bank levies is for banks to continue to pay extremely low interest rates on deposits.
Without a doubt, this new program is a troubling development for people who rely on bank interest income for living expenses, such as senior citizens who have saved all their lives in hopes of living off bank interest in their golden years.
Also at issue is whether or not, as Obama senior staffer Valerie Jarrett argues, "it's clear that financial institutions have rebounded."
That is in fact far, far, far from clear. Banks are still very much at risk due to defaulting mortgage loans and consumer debt, such as credit cards.
If and when the federal government stops lending money to banks at zero percent interest rates, banks may feel the need to pay depositors more for the use of their money.
Alas, that day may be a while yet...
