3 Nov 2011

Move Your Money or Move Your Currency

With all the anti-Wall Street fervor going around, this Saturday is Bank Transfer Day—a day when people are going to transfer their money  currency out of too-big-to-fail banks and into community banks and credit unions. This. of course, could hurt big banks, who survive by preying on their customers, large and small.
But the problem isn’t simply that banks are too-big-to-fail or that there are a few evil bankers at the top of these big corporations—the real problem is the fractional reserve monetary system, and the fact that our economic system is predicated on an imaginary document called a dollar. Credit unions still have the ability to create new currency by making loans.
But banking, for most people, is a practical necessity—if you want to live life within some realm of convenience, you simply need a bank to handle payments, to cash paychecks, and to have a place to store some amount of cash. Many on the WealthCycles.com team bank with credit unions and community banks simply because they are more convenient, their people are nicer, and you’re not simply handing your hard-earned currency to a bank that’s teetering on collapse. In the United States, credit unions are not-for-profit, and they usually have higher deposit insurance and capital ratios than big banks that exist to enrich their shareholders.  
Many think that big banks don’t really give a hoot about the little guy moving his funds out.
With such an inherently flawed system, it’s hard to imagine that banks in their current form will go on forever. The system is changing, and we will need to change as well. Felix Salmon, in his Why The Big Banks Aren’t Sweating Bank Transfer Day, writes this:    
…[T]he big banks don’t particularly want all those retail-deposit funds — they’re getting precious little interest on them, and they come with all manner of expensive obligations to mail out statements and provide smiling service at teller windows and generally do the whole customer-service thing, which as we all know big banks are very bad at. Historically, they’ve done what they have to do on that front because they’ve been able to extract all manner of overdraft fees and interchange fees and the like, but that fee income is shrinking now, thanks to Dodd-Frank, and the fact is that millions of small bank accounts are actually unprofitable now for the big banks, and those banks won’t shed many tears if those customers go off to a credit union instead.
Meanwhile, the big-fish customers — large corporations, and municipal governments, and the like — are moving their millions to the TBTF banks, using a kind of ‘no one ever got fired for buying IBM’ logic.
So while I think it’s great that people are moving to smaller banks and credit unions, I’m not kidding myself that doing so is going to harm the big banks at all. In fact, it might even help them, at the margin.
Do you have any plans to move your currency out of the big banks, or have you already done so?


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