Big banks like Bank of America (NYSE:BAC) and Citigroup (NYSE:C) took extensive bailout packages during the financial crisis, but that hasn't stopped them from trying to boost their income at their customers' expense. Now, big banks have found a new way to profit from the bank accounts they offer, and they're threatening to hit customers with it.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the threat of big banks charging interest on their customers' deposit accounts. Dan explains that if the Federal Reserve stops paying as much interest on the deposits that JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and other big banks have at the Fed, they in turn will have to start charging customers just for the right to keep money in deposit accounts at those banks. Dan points out that this has resulted from the increased emphasis on loan securitization, which has encouraged JPMorgan, Wells, B of A, and Citi to make loans that they then repackage and sell to investors rather than keep on their books. As a result, the banks don't directly loan out all of their money, leaving them with reserves that they count on receiving Fed interest on in order to help finance their operations.
Dan discusses the implications of the move and concludes that while the banks might be justified from a business perspective, it's uncertain whether customers will accept any new fees. Until the Fed acts, the entire controversy might remain moot.
Fool contributor Dan Caplinger owns warrants on Bank of America, Wells Fargo, and JPMorgan Chase. The Motley Fool recommends and owns shares of Bank of America and Wells Fargo. It owns shares of Citigroup and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.