Bank Competition Hasn’t Helped Savers

During a recent cross-country road trip, I stopped in my old hometown — Lake Forest, Ill.

Among the changes I noted in this Chicago suburb of 20,000 was the proliferation of banks.

There seemed to be seven or eight with branches downtown.

These included mega-bank Bank of America, regional bank First Midwest, and community banks Baytree Bank & Trust and Lake Forest Bank & Trust.

When I was growing up in the 1950s and 1960s, there was only one bank downtown — First National Bank of Lake Forest.

You see, Illinois had a very restrictive law about bank branches. No state-chartered bank was allowed to have more than one office — in the entire state.

Because of this limitation, federal banking law restricted national banks in Illinois to but one office statewide.

Today, thanks to “deregulation,” it seems a bank can establish a branch just about anywhere.

And we savers are better off. Right?

In theory, maybe.

Although bank competition should benefit savers by putting upward pressure on deposit rates, its effect has been negligible in recent years.

When I lived in Lake Forest, I earned about 3% annually on my passbook savings account.

And those were the days when Federal Reserve Regulation Q actually imposed a legal ceiling on bank deposit rates. (The last vestige of this rule — prohibiting interest on Fed member bank checking accounts — was repealed last year.)

Today, a savings account at Lake Forest B&T earns 0.10% APY.

Baytree B&T’s savings account rate is a more respectable 0.50% APY; its money market account rate an astounding 0.80%!

We all know why savings account rates are now in mere fractions of 1%.

While deregulation has flowered in banking for 30-odd years, in one area the government has become vastly more heavy-handed — the manipulation of interest rates.

Savers, not financial institutions, are the targets of this perverse regulation, which some have called “financial repression.”

The Fed’s zero-interest rate monetary policy and “quantitative easing” have become immutable facts of life.

But I guess regulatory changes — together with technological advances — have spawned one saver benefit not available back in the day.

Online banking.

I was particularly appreciative of that during my hometown visit, where the heat index soared to triple digits daily, and I could do all my banking, on my iPad, in the air-conditioned comfort of my hotel room.

It’s not much, but it’s something.

Still, I’d rather earn 3% on my savings account.