Wednesday, October 19, 2011

Would 'Bank Transfer Day' make any difference in anything?

Coming up on Nov 5th some activists are trying to organize a nationwide "Bank Transfer Day" where people would transfer their money out of big banks, and into credit unions.  Why on Nov 5?  It's Guy Fawkes Day, which is related to a 1600's era Englishman who wanted to blow up the English Parliament and later inspired a comic book (and even later a movie) named V for Vendetta.  Between the Fawkes mask in the Bank Transfer Day logo, and the choice of day, one can assume their intention is destructive, to cause some harm to the banking system by removing money from the banks.

When we deposit money in a bank account it increases the asset base of that bank.  That is, deposits in bank accounts are carried as assets on the bank's books.  Bank's lend their assets (the money we deposit in the bank account) and earn revenue based on interest (and bank fees) they charge from the loans.  Our money deposited in big megabank accounts increases the power of the megabanks.  If we instead deposited money into credit unions, it would shift power from big megabanks to smaller local banks.

The Bank Transfer Day Facebook page talks about this, the difference between banks and credit unions, and some recent bank reform laws.  Banks are for-profit companies whose Board of Directors are appointed by shareholders, where Credit Unions are non-profit companies whose Board of Directors are selected from members, that is the account holders.  This probably means, as the BTD people suggest, that decisions running Credit Unions are more closely aligned with account holders, than decisions running the big banks.

Maybe we'd have a better world if the credit unions were stronger and the big banks were weaker.  But … the BTD crew is inciting us into committing a mass run on the bank, which would crash the system.  Or are they?  They say that's not their intention, nor is their intention to crash the system.  A mass withdrawal of money from banks seems like the very definition of a run on the banks, and as we know this is something which can cause big havoc.  The Great Depression was caused when a stock market collapse (1929) spooked the population, who tried to withdraw their money (run the banks), to keep the money at home, causing the banking system to have no money and therefore collapse.

That's what they're risking with this call for action - crashing the banks.  The BTD crew suggests in their Facebook page notes this isn't a true run on the banks like what caused the Great Depression.  Rather than keep their money at home, the instructions are to switch from big banks to credit unions.  Money will still be in the banking system, but instead with organizations that are friendlier to real people than the big banks.

What I'm wondering is whether it will make a difference?

This reminds me of boycotts ...  Boycotts tend to have a short blip of an effect, you avoid buying gasoline from the particular brand for a day or a week or whatever, and eventually go back to that brand.  In this case the big banks have been rightfully tarred with negativity due to the 2007-8-9 financial collapse and the mortgage crisis.   Would transferring bank accounts have a similarly short term effect?

I rather doubt there will be very many people switching their bank accounts.  Banking relationships are more permanent, with longer ranging effects, than gasoline purchases.  Right?  There's all sorts of things connected to your bank account, automatic deposits, automatic payments, credit cards, and so on.

The major difference would be a relocalization of banking relationships.  A criticism some have of the current financial system is the siphoning of profits out of a local area to the pockets of remote business owners.  This depletes the financial strength of a given location.  Relocalization calls for buying from locally owned stores, and using a locally owned bank, and maybe even taking the step of creating a local currency.  The point of that is to keep profits within the local community, keep money circulating locally, keeping financial strength in your local place.

Relocalization of this sort is a larger thing than a blip of an event riding the coat-tails of a protest movement that might fizzle out once the snow starts falling.  Relocalizing the economy is a long term large scale project of education and action.

In any case here's a few videos:-

Fox News talking about "Should Wall Street be Worried"?  Towards the middle they start getting riled up about how Dodd-Frank is preventing the banks from doing things, and over the Government acting to Prevent a Bank from "investing their own capital" in whatever they want.  Uh..  Do they not recall how the financial system recently collapsed?  Have banks been reduced to utilities who must follow the edict of government?  That's how banks used to be run, with strictly laid out interest rates that gave banking huge predictability, and safety, but made banking jobs incredibly boring.  Decades of deregulation made banking a more interesting career, but let banks go into riskier businesses, and let banks create financial crises.

The rightful role of Banks probably is more like a utility.  Their job is to manage investment dollars.  This is a fundamental bedrock of society, and if we want that to be a solid bedrock then banks must be tightly regulated.

A local news program going over the difference between banks and credit unions

Protesters from Occupy Santa Cruz wanted to close their bank accounts, but got kicked out of the bank and threatened with the police.

Another group of protesters, in St. Louis, also prevented by BofA from closing their accounts.


The Denver Community Credit Union makes a plea for Credit Unions...




Steve Jobs