The trading errors that led to a more than $2 billion loss at JPMorgan Chase made national headlines. But what may not be immediately obvious is the impact this may have on the average bank customer.
Some aspects of multinational banking are far removed from the business of everyday checking and savings accounts. Sophisticated risk hedging, derivatives investing and multi-billion dollar trading positions all take place in a world far removed from the local bank branch.
Yet when a major problem rocks the high-finance sphere of banking, the aftershocks can be felt throughout the industry -- even at the local level. In other words, you don't have to be a JPMorgan customer to feel the effects of its troubles.
Here are five ways JPMorgan's massive trading loss could eventually affect you:
1. More downward pressure on savings and money market rates
Banks like to attract deposits when either the lending or investment environment is strong enough for them to put that money to profitable use. The JPMorgan trading mishap is just the latest reminder of how treacherous the investment environment remains. It's hardly the sort of news that will make them want to offer higher interest rates on deposits.
2. A stepped-up attack on branches
Traditional bank branches are already a prime target for bank cost-cutting -- witness last year's sale of 195 branches by HSBC. The more earnings come under pressure -- and a $2 billion loss will put a damper on JPMorgan's earnings -- the more of this kind of cost-cutting you can expect.
3. Another strike against free checking accounts
Where they are not cutting costs, banks that are struggling through the investment environment will try to raise revenues by charging for services that used to be free, such as checking accounts.
4. New fee initiatives
Last year, Bank of America made an abortive attempt to implement a debit card fee. They drew back under a storm of bad publicity, but expect banks to be constantly on the lookout for new types of fees they can charge, in addition to boosting traditional fees, such as the aforementioned checking account fees.
5. A shift in the regulatory debate
The one positive after-effect of the JPMorgan debacle might be to encourage stricter implementation of the Volcker Rule, a measure to restrict the use of bank deposits for speculative investing. Certainly, the efforts of JPMorgan CEO Jamie Dimon and others who have been lobbying to water down the Volcker Rule have now lost much of their credibility.
As you can see, the average customer has more to lose than to gain from the high-stakes world of bank investing. That's why rules to separate such speculative activity from traditional banking operations would benefit customers who depend on bread-and-butter products like checking and savings accounts.