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Banks Should Screw the Depositors if Fed Forces Them to

Tickers in this article: BAC C JPM USB WFC

NEW YORK (TheStreet) -- The world is so awash in liquidity that big banks may soon feel forced to charge some of their customers for taking deposits.

The excess liquidity might be news to consumers who find themselves highly "illiquid" in tough economic times, but the Federal Reserve's "highly accommodative stance of monetary policy" has consequences, especially for savers.

As the economy has gone through its ups and downs, depositors over the past several decades have seen radical changes in how banks work to gather deposits, or turn them away. Depending on how old you are, you might remember banks giving away toasters and other goodies to new depositors. My sister and I received nifty little transistor radios when our parents opened savings passbook accounts for each of us during the 1970s.

I also have fond memories of receiving high double-digit rates on a passbook money market account during the early 80s.

Ah, the good old days. Banks don't give away toasters anymore because they don't need the money. Demand for commercial loans hasn't recovered to anywhere near its pre-crisis levels, meaning most banks aren't desperate to grow deposits to fund their loan pipelines.

Savers have been suffering for many years, following the drop in the Fed's target for the short-term federal funds rate to a range of zero to 0.25% late in 2008.

Rates on long-term bonds had already been dropping for an extended period, even before the credit crisis, causing retired investors used to "clipping coupons" and enjoying a continued flow of decent yields from bonds to look elsewhere for higher yielding investments.

The Federal Open Market Committee (FOMC) has repeatedly said that it would likely remain "appropriate" for the federal funds rate to stay in its current range at least until the U.S. unemployment rate drops below 6.5%. The October unemployment rate was 7.3%, increasing from 7.2% in September. And Federal Reserve Chairman Ben Bernanke has indicated the federal funds rate could stay in the zero to 0.25% for a considerable time after the unemployment rate falls below 6.5%, unless a "preponderance of data" indicates a strengthening of labor markets.

The FOMC last week released the minutes of its Oct. 29-30 policy meeting. According to the minutes, "most participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions."