Regulators Are Supposed to Prevent Bank Runs, Not Cause Them

My colleague, Anthony Randazzo, commented this morning on the unintended consequences of the Dodd-Frank Act and specifically the Durbin Amendment placing caps on swipe fees. The new regulations will cost Bank of America an estimated $2 billion in annual revenue, forcing the behemoth financial institution to introduce a $5 monthly fee to its customers for conducting debit card transactions.

Apparently, the public, and especially B of A customers, doesn’t much like getting nickel and dimed by their bank. So much so that B of A had to deny access to its online customers because of unusually high volumes of page requests to their website from disgruntled clients looking to take their accounts elsewhere. Of course these customers could head to their local branch to resolve any problem, but according to Bloomberg Businessweek, “Customers are charged an $8.95 monthly fee for the account if they also use branch locations.”

Bank of America is the largest US bank by deposits holding nearly $1 trillion as of June, 2011. With all the negative press lately and the most recent upheaval over the myriad of fees being charged, this top spot may soon change hands. Should negative sentiment over these issues go viral, it’s conceivable a bank run could ensue. Given this message being issued to B of A customers trying to access its site, it may have already begun:

Home Page Temporarily Unavailable

We’re sorry, but some of our pages are temporarily unavailable. Thanks for your patience.

If you like, you can:

Continue to Online Banking

Access Merrill Lynch Online

Find a Bank of America ATM or branch

The telltale sign of customers demanding a return of their deposits from their bank is a long line of anxious individuals outside a branch waiting for their money, but for America’s internet generation, it may very well be the image above. This is the message B of A customers have been receiving since last Thursday and are continuing to see today.

Another ugly and worrisome sign is Bank of America’s stock which has lost $45 billion in market capitalization since August 1st, and $5 billion in today’s trading alone, printing a 52-week low of $5.60 a share. It is getting dangerously close to the March 2009 lows near $3.

If the free market is speaking with its feet, it is certainly walking away from B of A, and if enough depositors flee from the bank in response to fees upon fees, it could possibly spell B of A’s demise. Judging by what the derivatives markets are forecasting for this company, it would not come as a surprise.

Failure is an important element of the free market, and it is one that should never be interrupted if it is warranted. But, in this case is it warranted: a bank losing customers because of its forced response to crushing regulation?

To clarify, Bank of America has problems upon problems, and any one of them can be attributed to its ultimate failure (should if fail), but if the nail in the coffin comes as a result of regulation, one can only hope that anger over another major bank failure be directed at its rightful cause.