A couple of months back, I wrote about, or more accurately I vented about an experience that I had with my local bank. That week my part-time office manager and bookkeeper delayed making a bank deposit for a few days, assuming there was plenty of money in the bank. In the meantime, I had made an online payroll tax deposit, depleting our main checking account while the deposit rested in a desk drawer.

 

Within two or three days we had a half dozen checks come through, to the dollar amount of a couple of thousand dollars, which the bank honored but charged us $350 in insufficient check fees, our due punishment. 

 

After making our tardy deposit, I called my banker, a personal friend, and explained what happened. He said he thought he could do something about some of those late charges, but probably not all of them; and in a day or two our online banking page showed us that is exactly what he did. We were still stuck with well over $100 in charges for a few days when that account was under water.

 

The more I thought about it, the more annoyed I became, since we had over $10,000 in another business account in this bank during the same time frame, and routinely have $15,000 to $25,000 in our checking accounts at any one time. This is money we lend the bank at the amazing interest rate of 0 percent! But our mistakes have to be accounted for. 

 

This, of course, was all just a normal part of “The Banking Game.” I decided to go have a talk with my banker friend in person and ask him why, since we rarely make such mistakes and had plenty of cash in another account, they didn’t refund all those overdraft charges for a long time commercial customer? I promised to share his answer in a follow-up “Trenches” column. So, here it is, and our conversation was surprisingly enlightening.

 

I came up with several possible answers that I shared with him sitting there in his office, and they were either (a) The bank president set the rules, and he didn’t have the authority to override them, (b) This is how the bank disciplines its customers (c) Overdraft charges are a revenue stream the bank doesn’t want to give up, or (d) All of the above.

 

“Jim,” (not his real name), quite honestly and unashamedly said, “all of the above.” Then added, “There is one more reason for the fees we charge. We use them to pay for the bad checks we never collect on.” 

 

That made sense, of course, and I gave him that much. I mentioned that we have two businesses, and two business checking accounts at this bank, and I thought our monthly averages were at least $10,000 in each account, which he verified with a few key strokes on his computer. I then asked him if deposits in business checking accounts are a significant part of a local bank’s resources.

 

Jim admitted they were, and said that checking accounts amount to around 20 percent of the banks cash assets. 

 

“Most of the assets of a local bank, however, are savings accounts and CDs,” he said. “Fortunately there are quite a few older people who like keeping their cash in a safe and available place.”

 

I asked Jim what the bank paid in interest on savings accounts these days (basically nothing), and on CDs (a hair over nothing), and I’m thinking that if they pay almost nothing for their money then loan it out at market rates, banks ought to have a decent profit margin. But that’s what I get for thinking.

 

Jim continued, “But the banking business isn’t what it used to be. Things are so incredibly competitive now, and times are hard. We used to routinely make 1.5 percent or even 1.75 percent on assets (roughly a 25 percent profit margin), and now we do good to make 1 percent on assets and even less. 

 

“We compete with everyone from GMAC to E-Trade, and banks from Dallas and who knows where else. We are trying to survive any way we can. At the same time we are dealing with more delinquent loans, more fraud, and much lower interest rates.”

 

At one point in the conversation he talked about their desire to keep their good customers, and if I thought they had been unfair he would try to get the rest of our charges refunded. But by then I hardly had the heart to make an issue of it anymore. I had been a good customer of his bank for many years, and I understood he appreciated that. I also thought that if I had stayed around and visited a little longer, the bank might have asked to borrow money from me!

 

Yep, these are tough and crazy times we are living through, and many people and many businesses are trying to survive any way they can. What he said kind of made me count my blessings, and even feel like we’re a little bit important. 

 

I still don’t know much about “The Banking Game,” but it didn’t sound like much fun to me. If my biggest problem right now is figuring out how to get all the work done, we must be doing okay. I hope that’s your biggest problem, too, and that you and your business are finding your way through this recession. 

 

Have a really great month—Rick