The Huffington post now features a screaming giant headline:
A NEW YEAR’S RESOLUTION
Move Your Money To Community Banks
This article argues that Wall Street banks are wrecking the economy and we would be better off if we collectively stopped funding their mischief. Hear hear!
The authors recommend moving funds to Main Street banks. They even created moveyourmoney.info to help people do that, providing access to a database of solvent community banks. That is a fine idea, but unfortunately they miss the opportunity to really address the problem. Credit unions are not even mentioned in the original post, although they have added this update:
Credit unions do not disclose financial data in the same way as FDIC-insured banks. As a result, credit unions are not presently included in the IRA ratings database, which covers over 8,000 federally insured banks and thrifts. IRA is developing a method to rate credit unions in a way that is comparable to the IRA bank stress ratings. We’ll be updating users of “Move Your Money” on this issue early in 2010.
That’s a good addition, but credit unions should not be an afterthought. They are generally sound, so there is much less need for ratings like what IRA provides. Some credit unions are struggling, but they typically avoided the risky behavior that caught many community banks. Credit unions are generally insured by NCUSIF, which is way better than the bank insurance that is provided by the depleted FDIC.
Wall Street banks were once Main Street banks, and their governance is often fairly similar. The main difference is scale. Banks are banks.
It’s a Wonderful Life is central to the Move Your Money narrative: the good small banker (George Bailey) wins out over the evil big banker (Mr. Potter). But they totally fail to mention that Potter was not some big banker from out of town; he was the majority shareholder of Bailey’s own building and loan. He was just as much a community banker as Bailey himself.
Bailey merely managed what was effectively Potter’s bank. Bailey’s relative powerlessness was central to the plot. In the movie, it was the collective action of the people of Bedford Falls who saved George and the bank. The movie’s story was fine, but it wouldn’t have held up in real life. Potter would have come back and replaced the board, then done whatever he wanted. That’s how capitalism works.
This means that moving your money to a community bank is not really a solution. It depends a lot on the bank. Some may be very scrupulous and community-oriented; others may be in the process of being gobbled up by larger banks.
A couple of other points are worth noting: First, building & loan associations were often mutuals (which were cooperative in essence). Second, they gradually grew and mutated into savings and loans. Remember S&Ls? They were the trigger for the country’s last big financial crisis a couple of decades ago.
What Bedford Falls really needed was a credit union that was not under Potter’s control.
In a credit union, there can be no majority shareholder. Credit unions are not perfect, and many of them act a lot like banks. But their fundamental architecture is different. They are accountable to depositors, who benefit from any profits.
Even without the values argument, credit unions are functionally superior to community banks. As an expression of the sixth Cooperative Principle of cooperation among cooperatives, many credit unions create effective nationwide service through branch sharing arrangements like this one.
So yes, move your money. Please. All of it. Right now. You don’t have any excuse anymore. Here is a credit union locator to help you get started.
Happy new year!