It Matters Where You Bank
By David R. Williams
What’s the single most positive thing you can do for the Sonoma County economy? Short of starting the next Amy’s Kitchen or Agilent, it is transferring your money from a too-big-to-fail bank (so called because the government pumped $445 billion into the biggest four banks, figuring the failure of any one of them would have tanked the economy) to a local bank or credit union. Simultaneously, you will earn more on your own money, and keep more of what you’ve earned by enjoying lower (and fewer) fees.
When your deposits stay local they help people buy local homes and cars, and help local businesses to start and grow and strive and thrive. Those made-in-Sonoma jobs contribute to the local tax base, which pay for local schools, police, roads, vital services, firefighters ...
Conversely, when you take your locally earned paycheck to a Sonoma County outlet of a Wall Street bank, your money is more than likely to leave our local economy. The too-big-to-fail banks look for the best return they can get –– anywhere they can get it. That might be on a high-rise in Hong Kong, a casino in Atlantic City or an oil derrick in Dubai. That helps the economy –– there. But not here. Not where it matters to those of us who live in Sonoma County.
Local financial institutions also want to get the best return they can get from their deposits. But, with rare exceptions, they make those loans and investments in their immediate economy. That money re-circulates here, and has a multiplier effect for the Sonoma County economy.
Today, the Big Four Wall Street Banks (BofA, Chase, Citi, Wells) have nearly half of all U.S. deposits. The too-big-to-fails got even bigger during the Great Recession by gobbling up other banks on the cheap (remember Wachovia, World Savings, Washington Mutual?) and with help from taxpayers. The Wall Street Journal quoted Citicorp’s CEO Vikrum Pandit about how the U.S. government wouldn’t let his company fail because, “100 governments around the world would be trying to figure out how to pay their employees.”
But there are 15,000 alternatives –– community banks and credit unions –– all with the same $250,000 Federal deposit insurance, with as many (or more) free ATMs, free bill pay, but with lower fees.
Moreover, local financial institutions are active participants in the local community. An example was last fall’s annual fund-raiser for Schools Plus, the group that is keeping alive sports, music and the arts at Sonoma County schools hit hard by budget cuts. Exchange Bank, Summit State Bank, Redwood Credit Union and Community First Credit Union were sponsors and participants. The taxpayer-funded big banks couldn’t be bothered.
The Wall Street banks that dominate local retail banking are not headquartered in the west, and use a variety of offshore subsidiaries to dodge taxes and lobbyists to pervert tax laws (BofA, on a net income of $4.4 billion in 2010 paid no Federal taxes. In fact, it received nearly a $1 billion refund from U.S. taxpayers!).
Sonoma County-based financial institutions have a stake in this local community. The too-big-to-fails have an outlet. Managers at the local institutions live here, play here, raise families here, and invest here. The Wall Street banks take local deposits and funnel them elsewhere.
Here is a classic example from Bloomberg’s Business Week last month: Chase Bank ramped up its purchase of mortgage securities. That’s a good thing, right? By investing in more mortgages Chase could help the moribund mortgage market in the U.S. But of the $72 billion Chase invested last year, more than $60 billion was in foreign mortgages –– mostly in the U.K and Netherlands. In short, Chase took advantage of the Fed’s extraordinary low borrowing rates meant to stimulate the U.S. economy, but took that U.S. subsidization to invest in foreign mortgages because it could get a better return for its shareholders. Good investment on that $25 billion taxpayer bailout and $68.6 billion in emergency Fed borrowings to Chase, eh?
By contrast, Community First, where I work, operates the old-fashioned way: we put the community first. We do this by offering a 7.07% (just like the Sonoma area code) rate on youth deposits, in-class financial literacy presentations (to more than a 1,000 local students in the past two years) and by consistently having higher deposits rates and lower home and auto loan rates than the too-big-to-fail banks.
Transfer your money for self-serving reasons (which is fine) or altruistic reasons –– or both. Transferring your money to a locally based community bank or credit union will make a positive difference to your pocketbook and to the economic vitality of your local community.
Community First has five locations in Sonoma County to serve its 13,500 local Members. Central Santa Rosa (College @ Mendocino), West Santa Rosa (70 Stony Point), Guerneville (Main Street), Healdsburg (32 North St.), Sebastopol (130 Petaluma Ave.) 707/546-6000; www.comfirstcu.org