Last night during his speech on the state of the Union, President Obama offered several proposals that would give community banks the capital they need in order to make loans to small businesses. American citizens who are rightfully angry with the large banks that triggered our recent economic meltdown should move deposits from the large financial institutions that have done little to nothing to change the way they do business, into community banks.
When I first heard someone suggest moving deposits into community banks I resisted the idea for purely selfish and logistical reasons. I worried about limiting my access to the cash that is available from the omnipresent automatic tellers of J.P. Morgan Chase, Citibank or Bank of America. The more I think about the idea, however, the wiser it seems. Without the easy access to cash, I may be able to save some money.
It is interesting that you would note President Obama's mention of moving money from larger banks to smaller, more community oriented ones. I also am hesitant about moving my money from a large, well known bank to one with less access. However, my main concern is this: if everyone does just what President Obama suggests, and moves their money to these community banks, then won't they too begin to grow and experience some of the same problems that the larger banks have dealt with before?
ReplyDeleteBrittany Garrison's point is an excellent one but I think that it would take decades for the community banks to become as large as some of the institutions that were deemed too big to fail. The idea is that there will be many community banks throughout the country. They will become stronger with President Obama's proposals to help them, and they will perhaps become bigger, but there will be too many of them to grow too large.
ReplyDeleteTiffany Mack
ReplyDeleteI can agree that it would be some years before these community banks grow into larger ones. I personally am afraid to move my funds to a smaller community bank for the fact that is may subside and go under. I am not banking/business savvy on what would happen in that event; but losing money in these times is a big deal. I would hope to move money to a community bank in the near future to possibly help our economy grown. It is an awesome idea to give these banks money to fund small businesses; but it is also important that these small businesses create economic value and o not create a substantial amount of debt.
Small banks help to fuel the local economy which in turn, will stimulate the economy as a whole. There are some small banks in my hometown and they have prospered for as long as I can remember. However, it is normal for people to be hesitant to move there money from larger banks to smaller banks. As Brittany stated, these banks could possibly become larger banks and will end up having the same problems as the large banks of today. There are pros and cons to every situation. If people do engage in putting there money in small banks hopefully the pros will outweigh the cons.
ReplyDeleteKaren Lander: I wouldn't worry about my own money in a community bank because, sadly, I don't have more money to deposit than the FDIC insurance would cover if the bank failed. I like the concept of providing capital to community banks in order to stimulate small business. But the plan depends not only on banks taking the money but also on them taking risk of lending it. This has a been a problem with the stimulus monies already in bankers' hands. Banks have been given access to money to lend but they have not passed the money along as loans to customers.
ReplyDeleteBanks current unwillingness to lend highlights the basic problem with trickle down theories of wealth. It depends on private entities behaving in a way they may not. If banks are not subject to regulations to actually provide the loans once the money is passed to them by the government then the community banks would be the only small business with a better balance sheet. But I'm hopeful. A small community bank may be more likely to lend to a small business. than a big bank. The type of risk that a large bank perceives as too high might look less risky from the perspective of a community bank who knows its customers and community. Additionally, the community bank will thrive if the community and its customers thrive, too.
Can small depositors like me really make a difference? Would the effect of small investors leaving big banks create change in their behavior? Would my deposits in a small bank further fuel their willingness to actually lend their capital? I'm not sure. But I don't think if would cost me anything except the paperwork hassle of changing over to another bank.
With the little money that I have today, I would be willing to move my funds into a smaller community bank. The larger banks have done their fair share to corrupt our economy and smaller banks are barely weathering the storm. I think it is a great idea to provide community banks with financial incentives to keep them afloat and to increase small loans to businesses. At this point, what would be losing by at least giving this idea a try?
ReplyDeleteFor 57 years, I have developed a meaningful relationship with a community bank. It's kije having someone taking a personal interest in your financial needs(mortgage, automobile loan,
ReplyDeletebank book loan etc.)All these are made possiblle
and friendly evaluation by responsible representatives. There does seem to be an inclination to save and perhaps saving atr a community bank makes them consider you a worthy
riskl when loans are requested.
I am certainly a proponent of dealing with sound community banks over larger banks. Well managed community banks will focus on building relationships in the community and investing in small business with strong business profiles. Knowing and researching your bank if very important once you settle into a community. Any bank that is not well managed is a bank to avoid. Many times community banks provide better benefit and can certainly provide better customer service once relationships have been established.
ReplyDeleteCommunity banks generally are better capitalized, less leveraged, and less affected by downswings in the banking industry because of strict oversight and restrictions relative to their size. Even though these banks are considered less diversified, their insights into the local community and detailed customer information prove an advantage over larger banks. If larger banks focus on a geographic area or a particular market, like the sub prime, it can be disastrous as we have seen. The local management and ownership of the community banks provide stability and limit their risk by focusing on the enterprises in their local community. These small banks utilize their relationships to “work out” payment plans and foreclosure relief that would not be available in a large scale bank. Instead of write offs – they are looking for the return of their investment.
If numerous ATM’s are the only need of a consumer, than community banks cannot compete with larger banks….larger banks then would be a good place for keeping disposable income or spending money. However, for car, housing and education expenses – community banks should be given a look. Building a relationship now, often will allow them to take a chance on you in the future.
Moving funds to community banks is actually a great idea. Sure there is a risk that these banks could fold; however, this risk does not supersede the risk we take when we create accounts with larger banks. Kim is correct, community banks are presumed to be better capitalized with less leverage; aside from that it is often that community banks won't make large investments out of its community. Instead, community banks often focus on rebuilding its community by investing in small businesses, distributing mortgage loans with low interest rates. Community banks have a more intimate sense of what its surrounding community needs. This is important because if consumers feel as if a bank is working to assist and not take advantage, relationships built on trust will be established.
ReplyDeleteThe only down fall I see to this solution is that community banks may not be able to offer services to the magnitude of larger banks. For example, the monetary amounts available for loans and the availability of offices and atm's offered by community banks may be trumped by larger banks. Though these are all minor in terms of making solid investments, consumers tend to weigh these concerns when choosing a bank.
Ultimately, I support transferring from larger banks to community banks. The long term affect seems much positive and promising.
My first thoughts after reading this post were quite similar to those of at the beginning of the conversation. Each large company has to start somewhere. If each person, or even a majority of the population transfers funds to a community bank, the smaller banks will eventually become the large corporations. Grant it, this may take time, but it is inevitable that if enough people continue to transfer to smaller banks, the minority will soon become the majority.
ReplyDeleteI have personally used community banks, credit unions, and corporate banks. I honestly have a preference for the credit unions. Each entity has its pros and cons and I am sure they are specific to the particular establishment, rather then the type of establishment (i.e. Bank of America vs. corporate bank). Credit unions have the personal relationships and care that are found in small community banks, yet the interest rates often exceed those that can be found in community banks and sometimes even corporate banks. Additionally, if your credit union branch is not found in a particular area, you may possibly find a service center that will cater to your needs at no additional fees. The problem with this is, many people do not have access to credit unions. Additionally, if there is an influx of new credit union members, the benefits may dwindle. I also do not know the effects that credit unions have on the economy compared to small community banks and corporate banks.
Sounds like President Obama is calling for a "big bank boycott." Personally, like others who have posted, I do not have enough money to be worried about a bank collapsing. Although I usually support small business I am more concerned with convenience in this instance. I'd rather have access to branches when traveling than stimulate the economy by shifting my business elsewhere. Sounds selfish, but free choice is what capitalism is all about.
ReplyDeleteI like the idea of helping the smaller banks so that they have the ability to provide loans to small business. I do think that it would be a difficult process to get people to take their money out of these large banks and place their money into the small community banks. I personally think that people get comfortable and don't like change. Transferring their money from a large bank that they are comfortable with to a smaller bank can be too big of a change for them. I think that it is a good idea but people need to be willing to try it in order for the plan to have any chance of being successful. I agree with everyone that access to ATM's and the ability to access the money in bank accounts would be an issue that would arise. I think anything dealing with peoples money is a touchy subject.
ReplyDeleteI too am in the group of those that do not have enough money to worry about a bank collapsing but what little money I have is still mine. That being said, I choose to stay with a large well known bank because not only does it provide me easy access to my funds but it also wraps a big blanket of comfort around me and my money in the event that a collapse occurs. Please don’t misunderstand me as I am a proponent of small/local businesses and support them in my own way but I will not move my accounts from a bank that I have been with since I cashed my first paycheck twelve years ago to a community bank that may go under while in its adolescence stage. As Ms. Guydan stated, this may be selfish but that’s capitalism.
ReplyDeleteI understand the concern some of the posters express that these small community banks will eventually grow and begin to act like the larger ones; but I am also concerned about the acquisition or merger of these small banks with the larger ones. This concern unfortunately stems from personal experience. In college, I opened an account with the one bank on campus (a small local one), and remained with the same bank after graduating, a few years later, it was bought out by another bank (also a community bank), then about three years ago, that bank was also bought out by yet another bank (slightly bigger, but not quite national yet). So, I guess my concern is, where does it end? Even if, as Ms. Wade points out, there are too many community banks to grow too large, wouldn't enough mergers and acquisitions eventually lead to the same problem?
ReplyDeleteI worry that transferring our money into smaller banks will only begin the cycle again. These smaller banks will reap the benefits that come with increased business and then what? Will they continue to provide the same service and care that we desire or will they transform like others when they become profitable. As a couple of other posters have stated also, will the larger banks just buy up these smaller banks? Will these banks begin to lapse into the same greed and irresponsibility that the larger banks have done? These questions are not easily answerable and I don't believe if one places his money into a smaller bank that this will affect a change in the market. Instead of trying to begin anew, it seems more prudent to fix what is already broken and cleanup the mess that is the banking industry rather than spreading the problem into smaller segments.
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