Making The Move To Community Banks
GUY RAZ, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.
Most of the big banks that receive TARP money, the money the government set aside to help rescue them from collapse, have now repaid that investment. But many taxpayers, the people who provided that cash, are still asking questions: Why is it so hard to get a loan? And why isn't my bank willing to refinance my mortgage? Or why are those same banks now handing out huge bonuses?
Well, Michael Parisi, a graphic artist in Santa Cruz, California, was asking himself those very same questions. He'd been trying to refinance his home loan with one of the big banks, but every time he managed to get on the phone with a real person, he says, he had to start from scratch.
Mr. MICHAEL PARISI (Graphic Artist): It's been this like, comedy of errors, essentially. You know, one person doesn't know how to communicate with another person, and I am just a number lost in this sea of numbers, and you know, I've gotten very, very frustrated. And I just decided that, you know, this is absolutely ridiculous, and I moved my accounts to a local credit union, a nonprofit credit union, Bay Federal here in Santa Cruz, and started a loan application with them - which, by the way, would be finished in three weeks.
That's the kind of efficiency that the local banks have that these large, corporate banks do not have. It's a locally owned business. So you feel like you're talking to people in your community. You don't feel like you're talking to someone who's sort of filtered through some corporate monstrosity that really does not have your best interests in mind. You're actually talking to people who care about you and your - and the community at large. It's pretty amazing.
RAZ: Michael Parisi was inspired to put his money in a local bank, in part, by a campaign called Move Your Money. It was started by liberal blogger Arianna Huffington, and she's encouraging people who hold accounts in one of the big banks to move that money to a smaller, community bank, a bank that wasn't involved in buying toxic, subprime mortgages or taking unnecessary risks.
And she even commissioned a short film that uses choice clips from the movie "It's A Wonderful Life" as a kind of metaphor, with George Bailey as the local banker standing up to the big, corporate interests.
(Soundbite of movie, "It's A Wonderful Life")
Mr. JAMES STEWART (Actor): (As George Bailey) This rabble you're talking about, they do most of the working and paying and living and dying in this community.
RAZ: We stopped into the Independence Federal Savings Bank here in Washington, D.C., the other day. There are just four branches of this bank, and the day we came in, a pleasant smell wafted through the lobby.
Mr. BOB ISARD (President, Independence Federal Savings Bank): On Friday afternoons, we have our popcorn machine running.
RAZ: That's bank president Bob Isard. He says he likes to get to know as many of his customers personally as he can.
Mr. ISARD: We are there when people walk in. When you called to speak to me today, you got me on the phone. I don't think you would get the president of one of the top 10 banks in the country, if you tried to.
RAZ: Isard worked for big banks in the past, but he says there's something different about being at a community institution.
Mr. ISARD: The local bank in that town cares because having a playhouse, a movie theater, entertainment, restaurants - all those things are the lifeblood of business for that community. And when you start draining all those things away, the bank dies, too.
RAZ: In his State of the Union address last week, President Obama pledged to give smaller banks, like Independence, $30 billion - money he hopes that could be used to extend more credit to small businesses.
Simon Johnson was once the chief economist at the IMF. He's now a professor at MIT, and he says that shifting money from big banks to small ones actually makes good economic sense.
Professor SIMON JOHNSON (Economics, Massachusetts Institute of Technology): The smaller community banks and credit unions, I would emphasize, often offer a better deal, a better deal, more fair treatment on credit cards, better terms on your checking account, for example. And a lot of people have not really thought about that.
The big banks, the mega banks in our economy - the Citigroups, Bank of America and so on - have done really bad things to all of us through their misbehavior, and through their continued political lobbying that's preventing sensible financial reform. So moving your money is good for the individual person, and it's good from the point of view of the financial system.
RAZ: But why punish the banks if they have almost all paid back what was essentially an investment by the federal government?
Prof. JOHNSON: Well, it's not about punishment, Guy. It's just about responsibility. It's about people looking forward and saying, you know, how comfortable am I with the largest six banks in this economy now having total assets - which, of course, come from their liabilities, which is the money they get from us - total assets over 60 percent of the size of our economy, 60 percent of GDP?
That's a big banking system that's more concentrated than in the past. The same six banks back in the 1990s were less than 20 percent of GDP, measured on a comparable basis. How comfortable is anyone listening with the fact that these banks are becoming bigger - they're obviously extremely arrogant, they've behaved in a reckless manner before, and now the president himself is telling us that they need to be reined in.
RAZ: Simon Johnson, you're an economist, and I'm wondering about the economics of this campaign. I mean, you know, yeah, sure, there's populist appeal. Many Americans are angry about the bank bailouts. But if we all put - or most of us put our money in community banks and let the big banks collapse, wouldn't we, the American consumer, feel those consequences?
Prof. JOHNSON: Well, the big banks are not going to collapse. They've been underwritten by the U.S. government, essentially, and that's actually part of our problem.
They are, you know, so-called too big to fail - meaning when they get themselves into trouble, they get massive bailouts. And what you want to do is really, move the balance of the financial system, move the money away from those banks in a somewhat gradual and responsible manner.
RAZ: How would the big banks know if customers were actually moving their money because of this campaign?
Prof. JOHNSON: Well, one thing is customers tell them. A lot of times, you have an exit interview, and you go in to close the account, and at least anecdotally, we know a lot of people are telling their banks exactly why they're moving. It's not clear the banks care at this point, but I think they will wake up to this sooner or later.
RAZ: That's Simon Johnson. He's an economist and author of the upcoming book "13 Bankers." It's about the American financial system.
Simon Johnson, thanks for joining us.
Prof. JOHNSON: Thanks very much.
RAZ: Now, before you go rushing out to open an account at your community bank or credit union, you might want to consider what Bert Ely has to say about all this. He's a banking consultant based out of Alexandria, Virginia, and he says there could be hidden costs to making that move.
Mr. BERT ELY (President, Ely & Company, Inc.): You know, first of all, they may be sacrificing convenience, service and price. But it's not that I oppose this. I just think the whole idea is ludicrous.
If people, for whatever reason, want to move their banking business from a large bank to a small bank, you know, that's their right. But this notion of punishing the big banks in this way, I think, is simply ludicrous.
First of all, it's not clear to me what benefit is gained from it. I don't think the big banks are going to suffer enormous losses of customers on this. In fact, they probably won't even notice it because there's a constant turnover of accounts in banks of all sizes.
RAZ: The president, in his State of the Union address, pledged $30 billion for smaller, community banks. How much of an impact will it have?
Mr. ELY: Well, this would be $30 billion of so-called TARP monies that would be invested in the small banks. And first of all, many of these small banks do not want to take that investment. I've ever since this program's been around have counseled banks not to take the money unless they absolutely need it.
RAZ: Why not?
Mr. ELY: Because of the strings attached to it. And a lot of bankers have found out that these strings are just not worth the price.
But the other thing that's important to keep in mind is that most small banks in this country are adequately capitalized. They have ample funds to lend. The challenge they find is finding good, credit-worthy borrowers. That's why I don't think this particular program is going to have any meaningful impact at all.
RAZ: If for the average consumer, doing this - moving their money from a big bank to a small bank - is just a psychological victory, what's wrong with it?
Mr. ELY: Well, you know, nothing. You know, there's nothing wrong for it. I mean, this is a free country. People ought to be able to bank wherever they want. I might add that I bank in a community bank that I'm perfectly happy to deal with.
I question, number one, how many people will do it; number two, to what extent we can even measure it; and third, I would question the wisdom of it if someone will end up not being as well-served by their bank as they are with a large bank.
If I could give an example on that: In many large, metropolitan areas, if a family is kind of scattered in terms of where they live is some distance from where they work and where kids go to school, they may actually be better served by one of the large banks that, for instance, has ATMs that these folks can access without charge in all the different places. A community bank, by necessity, is smaller. It doesn't serve a large geographical area.
RAZ: So let's take a hypothetical example. Say 50 percent of individual account holders move their money from the largest banks into the community banks. Would there be any kind of overall economic impact?
Mr. ELY: First of all, if they lost 50 percent of their individual, family customers, it would have a huge impact on those banks. What we would see would be a tremendous shift of business from larger banks to smaller banks. Quite frankly from the standpoint of the economy, there would be a lot of cost if there was a shift of that great a percentage.
RAZ: But how would that affect an individual consumer? I mean, you say there are costs that might be associated with it. What kind of costs?
Mr. ELY: Well, the costs would be to the - first of all, to the large banks as they downsize their operations. For smaller banks, there would be a lot of costs and investments required to upsize their operations, and those costs would ultimately get passed through to consumers.
RAZ: So in essence, what you're saying is that you would just have a reversal of the situation, where community banks would then become the big banks.
Mr. ELY: Well, they would certainly become bigger banks. And I think that one of the concerns that always comes up with a community bank - and that is it will get to be too big a bank and as it grows, lose its association with its community and, quite frankly, become very bureaucratic.
RAZ: Bert Ely is a banking consultant in Alexandria, Virginia. Bert Ely, thank you so much for coming in.
Mr. ELY: Thank you for having me.
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