Credit due

It’s time to start banking local and put the big boys out of business

For a guy who spends an inordinate amount of time studying economics, I know precious little about personal finance. I can converse somewhat coherently about mortgage-backed securities and collateralized debt obligations, but when it comes to balancing my own checkbook, well, I just kind of wing it and hope everything works out OK.

So last year when I switched banks from JPMorgan Chase & Co. to the Sacramento Credit Union, I didn’t really have a good reason, other than the fact that Chase had formerly been called Washington Mutual and the name change rubbed me the wrong way. I didn’t know it at the time, but I was the vanguard of the “move your money” movement that’s spreading across the country thanks to Internet outlets such as The Huffington Post. Here’s Arianna Huffington and Rob Johnson describing the genesis of the movement and what it’s all about:

“Just before Christmas, a few friends were having dinner wondering what personal actions they could take to help limit the power of the big banks and create a more sane, stable financial system. How, they wondered, could they help end the era of Too Big To Fail? The financier at the table recommended that everyone could move their money out of the Wall Street banks and into community banks. Community banks are typically more conservative about how they manage their money, they’re more closely connected to the people and businesses who live near them and they’re more inclined to make loans they know will get paid back. In other words, they have the values that more people would want banks to have.”

This is borne out by pie charts you’ll find at, the Web site set up by Huffington and Co. Small banks with $1 billion or less in assets account for 34 percent of the loans made to small businesses. Big banks, financial institutions with average assets of $380 billion or more, loaned just 28 percent of the total. Small banks also make the most commercial loans. Yet big banks hold a 57 percent share of the total available assets, compared to just 11 percent held by small banks.

Translation: The big banks have most of the money, but aren’t lending it out to small businesses. The small banks are lending money, but don’t have enough of it. If more of us move our funds to smaller banks, those institutions will have more money to loan locally.

That goes especially for state and local municipalities, which, according to the Federal Deposit Insurance Corporation, stash two-thirds of their funds—$320 billion—in banks with $10 billion or more in assets. Just one-third of that amount, $78 billion, is kept in small banks that are much more likely to loan that money locally.

If the big banks are worried about The Huffington Post’s campaign, their representative in the Obama administration, Treasury Secretary Timothy Geitner, isn’t phased. Asked by Politico if the campaign was having any effect, the former president of the Federal Reserve Bank of New York answered, “I don’t. I’m not concerned about her campaign … but I agree with the basic principal that people are right to expect more from their financial institution.”

Back when I was banking with Chase, the only thing I expected more of was higher overdraft charges and ATM fees. I wasn’t really expecting anything different when I switched to Sacramento Credit Union. I had no idea whether there was any difference between a bank and a credit union.

As it turns out, there is. When I enter my new bank, they don’t call me a customer, they call me a member, because I became part owner of the cooperative financial institution as soon as I opened a checking account. Loans and other financial services are available at lower interest rates, and while I have yet to comb through the credit union’s balance sheets, I’m fairly certain most of its loans are issued locally.

Unfortunately, my credit is shot, and I won’t be qualifying for a loan any time soon. That doesn’t mean I can’t enjoy some of the credit union’s other benefits, including a nifty policy that reimburses me for all my foreign ATM fees at the end of the month. It seems moving your money does have its privileges.

Whether that includes taking the big banks down and injecting more money into the local economy remains to be seen, but the signs are positive. Geitner doesn’t think it will work, and if you go by his track record, it’s hard to think of a more ringing endorsement for moving your money.