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TheStreet Open House

Big Banks Might Charge for Deposits to 'Compensate' for Fed Policies

NEW YORK (BankingMyWay) -- The Federal Reserve has released the minutes of its October meeting on discount rate policy, showing it has once again decided to keep rates right where they are -- and that could mean trouble, eventually, for retail banking consumers.

The problem? A continued low interest rate policy from the Federal Reserve continues to drain bank profits, so much so that banks may decide to charge retail customers for their deposits.

Nothing is etched in stone, but the rumblings have already started among larger banks.

At the meeting, board members opted to keep interest rates at current levels (between zero and 0.25%), and some members are wondering openly what a sustained low rate policy will mean to banks bottom lines.

"A few participants expressed concerns about the eventual economic impact of the change in financial conditions since the spring; in particular, increases in mortgage rates and home prices had reduced the affordability of housing, and the higher rates were at least partly responsible for some slowing in that sector," said the Federal Reserve in its minutes release. "One participant stated that the extended period of near-zero interest rates continued to create challenges for the banking industry, as net interest margins remained under pressure."

But thats not scaring the Fed off from a low-interest rate policy.

"The committee reaffirmed its intention to keep the target federal funds rate at zero to [one-quarter] percent and retained its forward guidance that it anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored," said the Fed in its minutes release of Tuesday.

After the release, The Financial Times said the Fed policy and its "cheap loans" and subsequent low profit margins, has led to banks such as JPMorgan Chase and Bank of America looking to "compensate" for those lower revenues.

One idea reportedly brewing among big bank executive suites is to charge a premium to "hold money" for bank customers, a centuries-long practice by banks that rarely, if ever, resulted in charges for holding those deposits.

The Times says decision-makers at two of Americas largest banks said they would start charging customers a fee for checking and savings account deposits unless the Fed backed off on its low rate policy and began hiking interest rates.

Theres no word on what those premium charges will be or if theyll happen at all.

But heading into 2014, bank customers cant be blamed for waiting for the other shoe to drop -- if big banks dont get their way from the Federal Reserve.

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