Banks contributing to income inequality
Collette J.A. Smith, Contributor
As Lee Kuan Yew noted: [A]n economy needs to have low inflation and interest rates above inflation rates. People must be confident their savings will not melt away through inflation or devaluation against other currencies. In other words, sound fiscal and budget policies are the preconditions for success ... ." (2000:105)
A July 18, 2014 television newscast highlighted what was long suspected. In essence, the report highlighted that funds deposited to Jamaica's three largest commercial banks are subject to dis-savings. Not only are savers paying to 'lend' their hard-earned cash (including wages and salaries held at ransom) to these banks, but the banks are audacious enough to erode the savings by applying a 'laundry list' of fees and charges against customers' account balances, to enrich themselves, while using customers' deposit to carry out their day-to-day operations.
The only risk-mitigating measure to protect consumers are the reserve requirements set by the Bank of Jamaica, and the Jamaica Deposit Insurance Corporation. Unless there is a run on the bank, these commercial banks can, therefore, continue with the business of rinsing depositors' funds, while siphoning off depositors' balances with their fees and charges.
To add insult to injury, Jamaica's inflation rate is well above the deposit rates, and so MSMEs (medium, small and micro enterprises/businesses) and regular depositors are being hit from every angle, leaving them barely able to survive, or meet their financial goals and obligations.
Additionally, an examination of the profitability of these financial institutions (see the Jamaica Stock Exchange website for listed banks' financial reports) shows that income inequality is on the increase, in the commercial banks' favour. This means that as banks' profitability continue to rise, the incomes of their savers/depositors and those in the MSMEs continue to fall because of the cunning methodologies being employed to impoverish their customers.
Since policymakers have recognised the importance of the MSME sector to economic growth, and since savers are now more aware of the disparity and income inequality brought about by these unjust measures, savers and policymakers must bring pressure to bear on Jamaica's financial institutions to address these anomalies, and allow for greater equity in the system.
Customers have the power to remove their funds forthwith from disingenuous financial institutions that are seeking to distract the populace with rhetoric about the International Monetary Fund and other multilaterals, while they dip deeply into our pockets to take out the savings that we are trying hard to build up, to drive economic growth and development (including funds saved to pay for our children's education).
Policymakers must also urgently address the structural reforms that will contribute to reducing and further stabilising Jamaica's inflation and currency exchange rates. The latter requires a significantly greater focus on exporting goods and services, through engagement of the people, with plans being implemented, at the community level. Citizen engagement and activism are paramount to Jamaica's survival and development - and this includes holding banks accountable.