Net Interest Margin at the Core

 It strikes me that one reason people have so many financial issues is that the definition of "financial life" is too narrow. There are a lot of topics and issues that are important in the traditional world there are others that are not and cannot be addressed by those companies. For example, banks will help you buy your car or house but play no role in maintaining them, keeping documentation in order, etc. after you do it. 

This makes sense. Banks are really "good" at one thing - they take short-term deposits and pay them X% then lend that money to other people at Y%, collecting the spread (eg Net Interest Margin). While they have built and developed other capabilities, those activities are not their core skill (see: revenue composition of any bank). 

So long as the loan making them Y% doesn't fail, their model works. Why would they add new costs and problems to deal with voluntarily?

A different kind of company can do it though...

Starting Up - Banking Identity... (pt 2)

 I remember someone telling me once that the government, or congress, writes legislation. But that document has to be turned into rules and regs by the various agencies and groups that deal with the policy. Turns out, that is true for this question as well.

The last item for identification is "other relevant information," which is broad and vague to allow for breadth. It turns out that the site for the BSA/AML manual to direct examinations 

https://bsaaml.ffiec.gov/manual

both goes into more details and send the reader to The Code of Federal Regulations

https://www.ecfr.gov/current/title-31/subtitle-B/chapter-X/part-1020#1020.220

It turns out that there really isn't a more detailed requirement beyond the Big 4...

1. Name 

2. Address

3. Date of Birth

4. Identification Number (e.g. SS#)

But you can imagine that a bank would want to get information beyond this for anyone working or making their money from something less than up the middle of Broadway (e.g. pawn shop).

Starting Up - Banking Identity...

 It looks to me like the PATRIOT Act requires that banks both verify the identity of account holders and maintain a record of identifying information:

SEC. 326. VERIFICATION OF IDENTIFICATION.

(a) IN GENERAL.—Section 5318 of title 31, United States Code,

as amended by this title, is amended by adding at the end the

following:

‘‘(l) IDENTIFICATION AND VERIFICATION OF ACCOUNTHOLDERS.—

‘‘(1) IN GENERAL.—Subject to the requirements of this sub-

section, the Secretary of the Treasury shall prescribe regula-

tions setting forth the minimum standards for financial institu-

tions and their customers regarding the identity of the customer

that shall apply in connection with the opening of an account

at a financial institution.

‘‘(2) MINIMUM REQUIREMENTS.—The regulations shall, at

a minimum, require financial institutions to implement, and

customers (after being given adequate notice) to comply with,

reasonable procedures for—

‘‘(A) verifying the identity of any person seeking to

open an account to the extent reasonable and practicable;

‘‘(B) maintaining records of the information used to

verify a person’s identity, including name, address, and

other identifying information; and

‘‘(C) consulting lists of known or suspected terrorists

or terrorist organizations provided to the financial institu-

tion by any government agency to determine whether a

person seeking to open an account appears on any such list.

There is no way, nor really should there be, to get around these regulations given their focus on terrorism and the hangover that remains since 9/11. At the same time, it isn’t specific as to what they have to have - is this something the industry just figured out over time? That is, if the regulators have not determined exactly what the banks are required to have then is it up to them? If that is the case, then how do they figure out what to do other than by copying each other? If this is the case then which organization ultimately determined the required information? 

The other question is what it means to “maintain records.” I am sure that this is interpreted as records that they own and protect to make sure that they can tie things together. That gets troublesome when all the information ends up in the hands of the front office, who are moving around a lot (particularly in retail). Had this information not been available at WFC then the rogue employees could never have opened new accounts on behalf of the customers. This was true when I was at JPM - I could see the SS# of my clients even though ostensibly there was no need for this. I never used it to verify the identity of a caller.

The other reason that this data exists is because they want to use it to market new products to people using the data-driven models they’ve built over the last 20 years. This is both a business-line and cross-selling effort - credit card databases are potentially quite useful for identifying people with large spending habits, which you might think would correlate with wealth. The big banks certainly think so.

I guess it isn’t important to start by disrupting this marketing machine the banks have built. The fight seems larger than the prize. But the first step, which can be an easier way to communicate the information… that should be doable.