Your own bank is getting in the way of your financial stability

Bills, bills, bills.
Bills, bills, bills.
Image: AP Photo/Mark Lennihan
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According to a joint survey released by the Financial Times and the Peterson Foundation, two-thirds of Americans say the stock market has had little to no effect on their personal finances.

It’s no surprise that respondents who said they believe the stock market does strongly affect them were in the highest group of earners.

This confirms the data that economist Edward N. Wolff warned us about in 2018: Focusing on the stock market is not the answer. The wealthiest top 10% of Americans own 84% of stocks on the market, leaving a mere 16% to the remaining 300 million people.

In other words: the system only really working for those at the top. For the majority of Americans, the state of the stock market has little to no impact on personal wealth—or on general wellbeing, as Wolff pointed out. Yes, we live in a consumer culture, but if you look at who makes and maintains the majority of wealth, hardly anyone is acting on behalf of the consumer.

Major media companies certainly play a role in this. News outlets are often hyper-focused on identifying which stock price is up or down over the course of the day. This is useful information if you’re an investor or working in the investment business, perhaps, but fairly useless if you’re part of the 90% outside that top income bracket.

So, if not the stock market, what should most of us be focusing on?

The answer lies in your very own bank account. Changes in the stock market don’t impact people watching CNBC or Fox nearly as much as overdraft fees, management fees, and monthly bank account fees.

A nation of debt

As a country, we have become so entrenched in a culture that creates debt that it may as well be listed as a national pastime.

Banks, like most businesses, have investors to answer to. So, they charge their customers overdraft fees, maintenance fees, and ATM fees to ensure investors see returns.

The Fed is wary of increasing rates that could hinder corporate growth, which has translated into an extreme laissez-faire approach to bank mergers and acquisitions.

There is now nearly $10 trillion in US corporate debt, a record 47% of the national GDP. Total US credit card debt is now $930 billion, even higher than the pre-financial crisis peak. These figures offer a stark indication of what the American dream actually looks like: We, as businesses and individuals, are overspending and under-saving.

The (real) important numbers

While about half of Americans own stock, those shares only account for around 16% of the entire market. This means that statistically, few people are likely to experience watching a $10,000 stock market-bet crash before their eyes.

But most Americans have probably seen the decline of saving interest rates and increase in credit card fees.

As a country, we expect—and receive—virtually nothing from banks. Our accounts might grow by 1% each year, but if you add in inflation—which has averaged around 2% over the last 20 years—Americans’ purchasing power declines when their money sits in their bank accounts.

This trend appears outside the US banking system as well: In Germany, banks are starting to use negative interest rates, meaning they charge their most vulnerable depositors interest for holding their cash.

How banks work

Banks function as a network of assets and liabilities. By depositing your money into a bank account, you are giving the bank the right to lend out your cash to other parties. A bank can then lend and lend, and usually it will overextend its monetary limits through fractional reserves. This means that if you withdraw your money, you potentially cause a shortage for the bank, because it has to cover your funds when it has lent out more than it has in cash.

If you picture this happening at a large scale, you can imagine the impact for the bank can be of earthquake proportions, potentially affecting its entire lending operation.

These fractional reserves are what allow banks to print money.

Democratic presidential candidate Elizabeth Warren might scare Wall Street with her strident policies to penalize billionaires, but that’s only because she’s touched on a nerve in pointing out the degree and pace with which banks are getting bigger and bigger.

When Warren asked the Fed how many bank mergers and acquisitions had been declined in the decade since the 2007 recession, representatives revealed it had overseen more than 3,000 approvals, with zero rejections.


In 1994, US banks with less than $1 billion in assets accounted for 25% of US assets. Today, banks with less than $1 billion in assess account for only 6% of all US assets. This consolidation allows banks to act unilaterally and drives down the interest-earning potential for consumers. This essentially means that banks operate entirely on IOUs and promises. The problem is that banks have shifted too far away from the consumer in an effort to appease corporations.

Our current banking conundrum feels similar to the problem we faced in the 1990s, when huge telephone companies charged their customers exorbitant rates to call their families and friends in different area codes.

Today, anyone with a smartphone and an internet connection has access to voice over internet protocol (VoIP) applications to make free phone calls over the internet through apps like WhatsApp and Skype. My hope is that the next frontier is money over internet—without fees and with actual benefits for depositors.

Somewhat similarly to telecoms back in the day, banking consumers currently spend 7% on cross-country banking transactions. But if governments embraced the decentralized financial system, we could use digital currencies that have the ability to send instant payments over the internet, using our smartphones or our digital keys.

Recent products like Facebook’s Libra should be a wake-up call to all of us: When your social networking platform tries to become a digital bank, it’s time to look into digital currencies. Countries like China are already testing the post-bank financial system. It’s time the US follows suit.