Barclays CEO Resigns – Will this send a message across the Atlantic?

Today Barclays CEO, Bob Diamond, was asked to resign and this has broader meaning than the removal of a single CEO. I believe the UK regulators and government were adamant that giving him a pass was not an option. So although there was logic in letting him stay, he had to go. The signal is clear – the banks have a role in public good and economic stability. Big Banks have been remiss, and Bob Diamond is a casualty. It sends a strong message – business as usual is not an option for the Big Banks in the UK.


Some speculate that it signals the end of the universal bank. After all it comes a few days after Sandy Weill, x-CEO of Citibank spoke out about the need to re-separate commercial from investment banking. This was a shock since Mr. Weill was one of the key figures in the late 90s for creating the financial supermarkets that combine investment and commercial banking.


I think it says something else – that US regulators are unwilling to lean heavily on the banks. There is a lot of political showmanship going on in Washington, but no fundamental change. Regulations in the US are overly-fragmented, extremely complex, and crying for a complete overall. But between bank lobbying, excessive campaign contributions, and entrenched state and federal interests – we have a “rearranging of too many deck chairs” approach to the situation. And instead of taking a strong stand on key issues  (like the UK) and simplifying our structure, we avoiding the heavy lifting to fix our banking and regulator problems.


Fundamental to what isn’t working in the US is too many conflicts of interest.


A recent example of this is Jamie Dimon’s (CEO of JPMC) sits on the board of directors of the Federal Reserve Bank of New York. The US Federal Reserve Bank is strongly influenced by the opinions of this New York Federal Reserve Bank. This gives them importance influence on key national monetary policies. (There are twelve districts, New York is District #2)


Now we learn that there is another tight connection because the wife of New York Fed President William Dudley, Ann Darby, is getting deferred income checks of $190,000 a year from JPMC. Obviously the watchdog regulator having these types of links to big banks is concerning. But this is not an isolated incident – these types of relationships exist all over the state and national bank regulators and Federal Reserve Banks and Districts.


And why should we care – the fact is we should care a lot. Regulators are there to protect the public good. And we all know what happens when they fail to do their jobs – we are living with this still today, 4 YEARS after the sub prime economic crisis.


In April 2011 the United States Senate issued the Levin-Coburn Report. Written by a bi- partisan commission of US senators, including both conservative senators and Tea Party favorites such as Tom Coburn, Rand Paul, and Scott Brown, the report found “that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.


So why don’t we seek out all these conflicts of interest and eliminate them?


One of the challenges of bank regulation in the United States is that the banking industry is regulated by a patchwork of federal agencies and state agencies that are the cumulative result of financial crises dating back to the Civil War. The Federal Reserve, the Federal Deposit Insurance Company (FDIC), the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) all oversee the industry. A parallel state banking system gives bankers more opportunities to influence regulators because they can participate in regulator boards like Mr. Dimon is doing. Just know – he is not the only one. I would say, there are direct (Jamie Dimon) and indirect (Ann Darby) conflicts all over the system.


We all know big banking needs big changes. That change is going to require big changes in  regulators, corporate governance and leadership. The UK took a big step forward by forcing the banks to change when they insisted on the firing of Barclays CEO. It should send a message across the Atlantic but I fear that message won’t resonate here due to many forces protecting the status quo.


Read more about this in BankRUPT – Why Banking is Broken, How it Can be Transformed.

49 Fees!

In the United States, banks have dug themselves a large hole with the structure and complexity of fees. And because their traditional revenue models are being legislated out of existence, it will just get worse before it gets better.


The consumers are miffed and thinking  “I’m getting more and more service from companies like Amazon, better products from Apple, but my bank is gaining in complexity and adding fees to more of the things I want to do.”


And the people who are the most price sensitive are hit the hardest by fees. For those consumers who can afford to pay, they are irritated by the complexity of the fees. So even though it may be “noise,” it is irritating noise. Both groups are especially frustrated, given the simultaneous decline in customer service levels.


Today, the Pew Institute reports that a checking account customer may be charged as many as forty-nine different fees. How can anyone anticipate and understand forty-nine different fees? It is too complex. So even if the fees make sense, it is impossible for the average person to remember all the potential fees.


The fees could be reasonable or fair, but the complexity, frequency, and always-evolving fee structure leaves the customer feeling like they are being nickel-and-dimed to death. And users can be informed at fees at different times; when using an ATM you may see one charge at the ATM and yet another charge on your monthly statement. It makes my head spin. I feel like I need a special calculator from outer space to calculate the actual fees I will be charged every month.


Overdraft fees are some of the most painful, since they are more likely to be levied against a tight budget family or individual. In 2011 the average fee was $27.50 for an overdraft but is predicted to increase to $40 or $45 in 2012. In this era of banking by super-computer, it is hard to believe that overdrafts are actually costing the banks more. And all those fees add up; Moebs Services says that bank deposit institutions earned $31.6 billion in overdraft fees in 2011.


According to, monthly fees on some checking accounts can run about $14 a month or almost $170 a year. And even with monthly fees, people can and do experience other fees. Avoiding monthly fees is also getting harder because banks are raising the monthly minimums for no-fee checking.


Banks need to take a time out and rethink the business and pricing model around banking. It is so complex and is a symptom of something fundamentally broken, as we will discuss in future chapters. We must look behind the scenes at banks to understand what is contributing to this increase in complexity, frequency, and increasingly irritating fees.


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