Local Banks vs. Big Banks

Dad tells it like he sees it

Since Dad hadn’t heard about my reference to the recent movement calling for people to move their money from large banks to small banks (see last post), I referred him to the follow article:

“Move your Money”


His reply:

To flee, or not to flee–that is the question:

Whether ’tis nobler in the mind to suffer

The slings and arrows of Big Banks’ fortune

Or to take arms against a sea of financiers

And by opposing end them.

The notion of moving your money to smaller banks is attractive. It feels like you’re “stickin’ it to the man,” taking control, helping out the little guy, rooting for the underdog. And as a social comment it might even be an effective one.  But me being me, I tend to look for the man behind the curtain.

The pessimist believes the glass is half empty.

The skeptic believes the glass is twice as big as it needs to be.

The cynic believes you’re only interested because you want to steal the glass.

I believe we must balance our social agenda with our own needs. In the “move your money” discussion that means looking at what such a move would do to me.

  1. Fewer branches at which to do business
  2. Fewer ATMs at which I pay no fee.
  3. Less likely to have effective online banking functions such as transfers and bill paying
  4. Fewer creative products like CDs with attractive rate structures
  5. More restrictive credit terms (they need to be more conservative).

It’s true that the little banks are insured by the FDIC just as the big banks are (although if you have $100,000 sitting in a savings account earning 1% we need to have a different talk). They are also just as tightly regulated. So don’t count on George Bailey saying “Oh you don’t have to sign anything. I know you; you’re good for it.”  And just like big banks, they are accountable to shareholders who expect a certain return on their investment.

Do you know how banks make their money? In George Bailey’s day it was by investing depositors’ money (beyond reserve requirements), mostly in the form of small loans. Today, the greatest source of revenue for banks is fees. So they are going to resell your mortgage just like the big banks do.*

*So says the Former Chairman of the board of local bank Westborough Saving Bank

And what of the trend of the last 15 years? If your little bank is successful, what will happen to it? It will be bought by a big bank. We started with Northeast Savings Bank. It got sold to Shawmut, which got sold to Bank of Boston which then sold off certain branches to Sovereign Bank. Also not all little local banks are as little or local as they seem – check their ownership. Sovereign was recently sold to Santander – a Spanish banking conglomerate which bills itself as “one of the five largest banks in the world by profit.” And so it goes.

None of this is to say that you should not move your money. The little bank is just as safe. And it is potentially a little friendlier if you take the time to build a relationship with the manager (she is less likely to be transferred to the El Segundo branch for doing a good job).

If moving your money out of the big bank and into the little bank gives you some satisfaction of a social statement, and you are willing to accept whatever changes in services that brings with it, then I say, go for it.

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