Bank of America's announcement last week that it would charge a $5 monthly fee for debit card usage really riled up some of its customers. With the news still fresh, CNBC's Larry Kudlow wasted no time asking its CEO Brian Moynihan why the bank created the fee. His reply might surprise you: it's better for customers.
Fees, regulation, Europe, and other issues the banking industry faces were also discussed during an interview on Wednesday at the Washington Ideas Forum.
$5 Debit Fees
How is another fee good for customers? BOA feels that the fee allows it to be more upfront with its customers. "We had a vision for our company to be completely transparent, Moynihan said.
Of course, the need for profit also has something to do with it. New regulation cuts into the bank's revenue, and fees like this are a way to fill in the gap.
Kudlow wondered whether Moynihan was bothered by President Obama asserting that "banks do not have some inherent right just to get a certain amount of profit." Moynihan explained that he has a duty as the CEO of a public company to provide a return to his investors. But he also said he balances that duty with one to his customers. He believes a fair, clearly stated fee like this one satisfies both of these goals simultaneously.
The Cost of Financial Regulation
In addition to remarks like this by the president and some members of Congress, Kudlow questioned Moynihan further about the actions the government has taken as it "wages war against banks." In particular, how does he feel about last summer's big Dodd-Frank regulation bill? Moynihan said that some people think that the bill goes too far and will harm the industry's growth potential. At this point, his bank is working hard to make all the changes necessary to comply wit the new law.
How much would the regulation cost his bank? Moynihan said that his estimates were in the billions.
The Crisis in Europe
Right now, one of the biggest challenges facing the U.S. economy is somewhat beyond its control. Several countries on the brink of default in Europe could cause a financial crisis on the continent, and contagion could hit U.S. banks as well.
While Moynihan did express concern about the situation, he believed that U.S. banks were in a much better condition to sustain the impact of a financial shock like this than they were in 2008. Their capital cushions are much larger. Kudlow asked about BOA's position, in particular: is he sure it can withstand a European crisis? "We do feel confident," he replied.
Returning to politics, Kudlow brought up news of a new proposal to levy a 5% surcharge on income above $1 million per year. Would Moynihan support the measure? Although he didn't answer directly, he said that his bank's affluent clients would say that it depends on what the additional tax revenue was used for.
If they believe the money would be used for a good purpose, then they would support the measure. One such legitimate use of additional tax revenue, Moynihan said, was to close the deficit. "A strong U.S. fiscal house is critical for our economy over time," he added.
But what about using a surcharge to provide a jobs stimulus? Moynihan
stressed that the U.S. needs to create jobs, and whatever can be done
to help that happen probably makes sense. That's not a shining
endorsement of the President's jobs proposal, but it does appear to be
an invitation for the government to provide additional assistance to the
economy in some form.