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Guest Post: Moving Your Money Can Have a Real Effect on Big Banks

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People have asked whether moving your money from your giant bank to a small community bank or credit union will have any real affect on the too big to fails, given that most of their profits come from speculative investments instead of normal banking deposits.

According to the Nation, the answer is yes:

The cynics either do not understand banking or misunderstand the widespread public anger. Dennis Santiago, [influential bank-rating firm, Institutional Risk Analytics'] CEO and managing director, explained that banks compete fiercely for the “core deposits” provided by individual and small business accounts–this stable money is their preferred base for profitable lending. Take away core deposits, and bankers feel immediate balance-sheet stress. Expand the account base for community banks, and they gain greater stability and greater lending power. “Will moving your money have an effect?” Santiago asked. “And by effect, I don’t mean making a momentary political statement. I mean making a structural difference to the country’s financial system. The answer is yes.”

The Nation points out that a wide variety of campaigns to take back power are being launched from diverse sources:

A campaign launched by faith-based community organizations associated with the Industrial Areas Foundation identifies sky-high interest rates on credit cards and other lending as the ancient sin of usury. IAF groups are asking churches, foundations and local governments to withdraw funds from the usurious banks that profit by destroying borrowers. Organized labor, likewise, has launched an aggressive movement to insist on responsible investing values for the pension-fund wealth of working people, urging state treasurers and fund managers to invest for society’s interests as well as good returns.

The Nation is right. There are numerous efforts to stand up to the giant banks.

Congresswoman Kaptur advises her constituents facing foreclosure to demand that the original mortgage papers be produced. She says that – if the bank can’t produce the mortgage papers – then the homeowner can stay in the house.

Debtors are revolting against exorbitant interest rates and fees and other aggressive tactics by the too big to fail banks. See this, this and this.

Portfolio manager and investment advisor Marshall Auerback argues that a debtor’s revolt would be a good thing.

Popular personal finance advisor Suze Orman is highlighting the debtors revolt phenomenon on her national tv show.

And see this and this.

What is fueling the debtor’s revolt?  Economic conditions are obviously a large part of it.  But the fact that the big banks are not abiding by “free market rules”, but are gambling with taxpayers’ money on the taxpayers’ dime, is a contributing factor.  In other words, many people apparently feel that since the banks aren’t playing fair or by the normal rules of contract , they shouldn’t have to, either.

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18 comments

  1. Little Eddie

    quote:
    In other words, many people apparently feel that since the banks aren’t playing fair or by the normal rules of contract , they shouldn’t have to, either.

    No, you should work inside the contract, if you don’t pay your credit card bill and are judgment proof (ie, have no assets) or stop making payments on a house that is underwater and all they can take is the house, then you are within the contract.

    I don’t feel sorry for banks that signed bad contracts to loan money to people that they should have know couldn’t pay them back.

    Every contract I’ve seen has what will happen if you don’t pay, sometimes not paying is the best option within the contract.

    Ed

  2. IdahoSpud

    I have never done business with a big bank. It’s difficult for me to understand why anyone would want to.

    They charge higher interest rates for loans and credit cards, charge you to have a checking account, and they pay lower interest rates on your savings/CDs – all to pad their bottom line.

    Never having done business with one of these mega-corporations, I would imagine it’s also far more difficult to get problems resolved.

  3. DellaTerious

    Reuters: “Regulators closed three U.S. banks on Friday, as deteriorating loans continue to claim community and regional banks reeling from the financial crisis.”

    Community and regional banks are not safe alternatives to the TBTF banks, as they relied heavier on commercial loans which simply take longer to fail. The FDIC then arranges for one of the TBTF banks to take them over, and voila, your money’s back in a TBTF bank. You can then move it again and start the cycle over and hope the FDIC can get the infusion it needs from treasury, as it is now insolvent.
    The FDIC created a bridge bank to protect depositors as they move their accounts to other institutions … but as we all know, bridges can collapse if they’re weighted down with too much traffic.

    1. Ina Pickle

      No, Della — no one is suggesting that one willy-nilly pick a bank out and stick money in it. Instead, it is quite a simple matter to look at the watch/endangered list of banks and know where one should not put one’s money, or to check what the stats are on the banks that are in the running for your business.

      Second, typically from the past few bank failures I’ve looked at, it was a large regional bank (from the same or a different region) that took the deposits/assets from the failed bank — not a TBTF.

      If you really are concerned about the soundness of the entire system, then perhaps the thing to do would be to withdraw from the TBTFs and hold the majority of your deposits in cash, with some in a community bank or credit union for convenience in paying bills.

  4. kevinearick

    Not a bad start.

    Under monetary policy controlled by the few, money is other people’s debt, a gun to their head, rather than stored economic profit, compounding for public benefit in a virtual cycle, which it should be.

    Self-sustaining communities with a surplus need to print their own money.

    For those who like the bottom line:

    Planetary evolution is the 12th player. The universe is the 13th player. You want both of those players on your side.

    An economy depends on durable, durable goods orders. That depends on durable new family formation, the self-adjusting mechanism of economics. As we have seen, durable new family formation cannot occur when credit decisions lie in the hands of a few, through electronic distribution. You cannot raise a family to meet evolutionary expectations with a gun at your head, extracting all proceeds from work.

    The ratio of pay to costs for unprotected labor must increase dramatically. In the current economic environment, pay is going down, so the cost of property and energy must go down dramatically, which the $500 Trillion in unfundable liabilities, associated with the old demographic acceleration economy, ensures.

    The outcome spectrum:

    The capitalists will come to their senses, and we will rebuild the economy to everyone’s benefit;

    The global economy will crash, many will die of disease, starvation, and war, and we will rebuild the economy for those that remain;

    The capitalists will trigger a global nuclear holocaust, most will die, and we will rebuild the economy for those who remain.

    Labor will meet any evolutionary requirements. Breeding is everything, which is why capital seeks to control it, through the employment of agency, which breeds ignorance, efficient specialization, that the laws of physics compound. Ignorance is naturally contagious.

    E / 0 = mc2 / 0 = V / 0 = CR / 0. There is always an alternative route of inductance.

    If you think about it, the current outcome was obvious as soon as capital engineered the oil embargo to put a gun to the head of labor. How long it would take for capital to discharge the middle class capacitor, developed over several thousand years, was the only variable. Labor always survives empires, because it never stops swimming against the current of evolutionary distillation.

    The cartels have been liquidating middle class assets to prop up prices. All they have left now is infinite monetary expansion. Relative tax receipts will continue to fall, demographic demand will continue to rise, and they are already printing money to issue all the checks, negative true cash flow.

    Time to take another tour of the carnage.

    1. kevinearick

      there are several websites that will provide you with community bank exposure to commercial real estate, the next leg down. It didn’t suddenly make the news by accident.

      1. nicholsong

        kevinearick said, “there are several websites that will provide you with community bank exposure to commercial real estate, the next leg down.”

        Can you point us to one or two? I’m looking for them right now.

    2. craazyman

      there’s enough lucid thoughtfulness in your narrative for me to really appreciate it. of course, there’s also a huge lunatic crank factor, but who among us is without a flaw. ha haaha

  5. saprofight

    It’s DIY antitrust: with debtors undermining assets and depositors withdrawing liabilities, the banks must shrink. A somewhat blunter object than an Antitrust Division action, but what the hell, the Holder DOJ shows no signs of life.

  6. Riggsveda

    Since 1995 I’ve been a member of the PA State Employees Credit Union, and it has been a wonderful experience. Their most recent newsletter contained information about the upcoming changes when the Credit CARD Act of 2009 goes into effect next month, followed by an observation that, for credit union members, nothing will change. As they said, “It doesn’t take an act of Congress to make us do good.”

    Please, do something good for yourselves, and move your money. The tremors will be felt through Wall Street.

  7. Jerry

    I’m closing out my credit card from Bank of America and moving my money out of bank ….perhaps to credit union..when government is boughtout and not listening, I and others can make a difference…..did you know there was a tax revolt during the depression…imagine that…..

  8. Thinking Nationalist

    Do what I did.

    I quit the BofA and Citicorp and moved everything to
    my local Credit Union.

    Good folks – friendly service – and, when I needed
    to have immediate access to funds from a clients’ check
    to pay bills, they gave me the whole thing.

    Plus, you can pay all your utility bills there NO CHARGE
    and the money is credited immediately to the utilities and phone co. ATM’s all over town, their VISA is
    only 8.99% APR – what’s not to like? Plus, they checked my credit and issued me the credit card ON THE SPOT.

    Their debit card and VISA is all I need. No more Citi M/C
    with 29.99% interest or the BofA with same interest rate plus annual membership fee.

    Plus, they have a members’ discount program for all kinds of things. Try that at BofA.

    1. Courtney

      That sounds great.
      I checked out the two credit unions I’m eligible for. One wouldn’t put their APY on their site or any of their rates for that matter.
      The other credit union’s APY wasn’t much better than Bank of America. I liked that I could use a large variety of ATMs when I travel. With the local bank however, if I need to use an out of network ATM, if I bring the receipt back, I’m refunded the money.
      In any case, I moved from Bank of America last friday and into a local bank. I plan to apply for a credit card soon so I can build up credit.
      The branch manager who set up my account was so nice. I loved seeing posters from little kids thanking the bank for donating $ to their classroom. That’s a bank I can believe in!

  9. Jamie

    Totally agree about getting out of those TBTF banks into smaller and solid banks that does old fashioned banking. Then you can put some of your money into T-Bills via TreasuryDirect.gov as well cash under mattress as they are safe money during times of depression.

    Sooner or later those TBTF would have to be nationalized and wipe out those shareholders and bondholders! I won’t be surprise Obama would order emergency order to freeze the accounts to prevent bank runs “Yes your money is still in your account, but you can only have limited token withdraws from your account for time being…” kind of thing.

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