Agreement on the Banking Bill: What It Means to You
June 25, 2010
The Congressional conference committee reached agreement early today on the final version of the banking reform bill that will go before the House and Senate for a vote next week. While that should be just a formality, keep in mind that the conference committee process has been contentious enough (with committee approval passing along party lines) that there is still a live long-shot of a chance that the bill won't pass both houses.
In the meantime, assuming the bill does pass into law, what do the changes mean to you as a banking consumer? MoneyRates.com will have more detailed analysis available immediately after the bill passes, but as a broad generalization, here's what the impact of the bill should be: safer, but more expensive, banking.
The specific consumer protections of the bill are all well and good, but the significant component is the so-called Volcker Rule, which would limit the ability of banks to speculate with federally guaranteed deposits.
In short, banks should go back to acting more like banks, and less like casinos.
The cost is that, with fewer ways for banks to make money and with more fees being levied on banks, there will be pressure on bank profit margins. This will show up in the form of lower rates for your savings accounts, money market accounts, and CDs, or fewer free services. For instance, free checking accounts might become less prevalent--though the more likely scenario is that account requirements for free checking will become tougher. With over 7,000 FDIC-insured banks, it is likely that some free checking accounts will still be out there.
The impact on bank rates will be impossible to measure precisely, which makes it a more politically palatable form of cost than fees. In other words, it is a hidden cost of this legislation, and once again, America's savers are footing the bill, just as they've paid for the low-interest-rate policies that were largely prompted by the banking crisis in the first place.
The bottom line, though, is that having the Volcker Rule provisions in the law may just be worth it. They are a return to the spirit of the Glass-Steagall legislation, which was passed during the Great Depression and worked pretty well for over 65 years. That legislation was repealed in 1999, and we all know what happened next....
