Why are bank accounts so complicated?

A BBC report today says that some popular current account packages are having their fees increased substantially.

The change in Santander fees – announced in September – will see customers paying £60 a year, instead of the previous fee of £24. The charge for its 123 credit card rises from £24 a year to £36.
Last year the Santander account proved very popular, with more than 27,000 people switching to it in a single month. But experts said that – even after the changes -it still offered relatively generous interest payments of up to 3% a year, and cashback of up to 3% on some household bills. “Don’t jump ship until you’ve done the maths,” said Hannah Maundrell, editor in chief of advice site Money.co.uk. “To put it simply, you need to look at how much you’re earning in interest and cashback. If it’s less than the new £60 a year fee you need to take it as a wake-up call to seriously consider your options.”

Why should people need to do complicated calculations to figure out whether their bank is scamming them? Obviously, this is a rhetorical question. I know, sort of, that banks see current customers as locked in, so they are motivated to provide a minimum of interest and service to them, while trying to dislodge a few customers from other banks with some flashy (but inexpensive) offer.

Barclays has said it will double its cash rewards programme for those who take out an account this month. Marks and Spencer is already offering incentives worth up to £220 to anyone who switches.

The article cites experts arguing about whether the banks have been forced to charge more because of increased costs, or whether they are padding their profits. But even have to raise the question shows how pathological banking has become. It’s the consumer

Every few years I find myself in my bank, needing to spend half an hour talking with a customer-service drone about why the Super Privilege Advantage account doesn’t pay interest anymore, but if I switch to the brand new Club Lloyds (really) Account I’ll get interest (varying amounts depending on my balance, increasing up to £5000, and then cutting out after that.

By the theory of the competitive market, you might think that someone would see an interest in providing simple financial services, to people who have better things to do than discuss their half a percent interest with a bored bank employee for half an hour every year or two.

Banks and casinos

The title may suggest I’m talking about the gambling proclivities of investment banks, but actually I’m talking about the way the high street banks treat their customers.

Many years ago I got fascinated by the fact that my mother seemed to be able to spend many hours playing blackjack in casinos, and not lose anything. I calculated the expected returns on a blackjack hand played with optimal strategy (but without counting cards). It turned out that the expected returns on a $100 blackjack hand are something like -$0.04. That means that if you play 1000 hands, your chances of coming out ahead are about 49.4%. Ridiculously close. Furthermore, that is the result of all kinds of extra options that are given to the player, like splitting cards, which each allow the player to move the odds ever so slightly in their favour — but obviously, they’ve been precisely calculated to make sure the odds of winning don’t go over 50%, since that’s a tipping point for the casino. But it’s so close to even that she could play 1000 hands at $10 each, and lose only $4 on average, much less than the value of the free meals and other inducements offered by the casinos.

So why do they do it? Why do they give the players all these extra tools, like splitting cards, to shave fractions of a percent off the house advantage? I realised that it’s a matter of giving players enough rope to hang themselves with. Most of these extras are almost never beneficial to the player. Most players will use them incorrectly, thus increasing their losses while simultaneously acquiring a satisfying sense of control over their fate. Continue reading “Banks and casinos”

Beware the Dijsselbomb!

Why are rich people so squeamish about the truth?

Some very smart people have taken to the Internet to ridicule Eurogroup president and Netherlands finance minister Jeroen Dijsselbloem for his inappropriate attack of clear speech. He said that “the Cyprus deal will serve as a template for future bank restructurings in the euro zone.” Sounds like something to cheer: Deposit insurance has been affirmed, but implicit taxpayer guarantees for wealthy bank creditors have been repudiated.

But instead we have Matt Yglesias saying “That’s the kind of remark that it would be very sensible for, say, a blogger to make. But Dijsselbloem is president of the Eurogroup of eurozone finance ministers, and a guy in his role is supposed to be reassuring people. Instead he caused them to panic.” And so Meneer Dijsselbloem issued another statement saying that of course the Cyprus bailout isn’t a template for anything, because every financial crisis is a unique special flower and no other European tax haven is an island and you can’t step into the same river twice… Continue reading “Beware the Dijsselbomb!”

Greek contagion

Since yesterday, news reports are full of comments like this:
Many economists fear that if Greece exits the euro, it could lead to financial contagion, as investors and ordinary bank depositors in other eurozone countries may fear that their own government will follow suit.

What does this mean? Are the Spanish looking to the Greeks as a model? That would be really weird. Esos griegos tenían un gran éxito con su incumplimiento de las deudasHagámos lo mismo. Or is it a matter of queueing up? Greece has first dibs on default, and Spain just has to wait its turn. Or is this setting up a resonance in a Sheldrakian morphic field of default patterns? Perhaps we are witnessing the final consummation of the marriage of 21st century mathematics and 20th century pseudoscience that finance has been tending toward for the past three decades (at least).

Surely the impact on investors will depend in part on the effects seen from a Greek euro withdrawal. At the very least If we think back to recent history, presumably any reasonable person would have thought, after the Lehman Brothers shit-storm, that the US financial authorities would be less likely to allow another similar bankruptcy to proceed. So, if Greece leaves the euro in a ball of flames, Spain will be unlikely to see it as a model. And if Greece’s exit from the euro isn’t so terrible then… maybe it’s just not so terrible.

British riots, further reflections


From the BBC web site:

Home Secretary Theresa May has asked the Metropolitan Police to check whether banning theft and arson is an effective strategy for preventing crime. Some criminologists have claimed that widespread looting and arson mean the laws are not having the desired effect. Speaking on BBC Radio 4’s Today programme, Mrs May hinted that the riot laws remained under review. She added: “There’s not much point in having laws that are inefficient.” She suggested that the funds currently spent on policing might be better spent on reconstruction.

No, sorry, I got that wrong. It wasn’t the Home Secretary, it was the Chancellor of the Exchequer. The correct quote is:

Chancellor George Osborne has asked the Inland Revenue to check whether the 50p top rate of income tax is actually making money for the government. Some economists have claimed that tax avoidance and evasion mean the rate is raising less income than expected. Speaking on BBC Radio 4’s Today programme, Mr Osborne hinted that the 50p rate remained under review. He added: “There’s not much point in having taxes that are very economically inefficient.”

Continue reading “British riots, further reflections”

Playing Euro Survivor

It’s starting to look like we’re all going to be entertained this summer watching the monetary reality show, Euro Survivor: Who can be the last country left in the Euro? Greece has already been voted off the island, even if it hasn’t left yet. Ireland and the Iberians are looking decidedly unpopular, and Italy seems headed downhill as well. (I never understood why Italy was not on financial deathwatch. Is such a massive default just too horrible to contemplate? Or perhaps people just assumed Italy couldn’t possibly print lire until Berlusconi has arranged adequate shell companies to siphon the printing contracts discretely into his own syndicate.) My money is on Luxembourg. It seems fair that they should get to keep the Euro for themselves, since I can’t remember what their currency was called before the Euro. Belgium may end up with two new currencies. (But what’s the first prize? Maybe they get the rump European Central Bank, and a free set of dominoes.)

Continue reading “Playing Euro Survivor”