On Friday, the Nation magazine got under Doug Henwood’s skin:
The Nation was out with an email blast this morning touting its branded affinity VISA card issued by UMB Bank in Kansas City. The magazine’s associate publisher, Peggy Randall, helpfully identifies UMB as “a small, regional bank recommended by the Move Your Money project, a project we support,” and therefore in accordance with the goals of the Occupy movement.
What’s the problem with moving your money out of Bank of America, Citi, etc. into small local banks?
So who is UMB Bank, really? It’s yet another iteration of the classic Money Mover’s institution: flush with more money than it can invest locally, it loads up on securities. (Parenthetically, why should a magazine based in New York encourage doing business with a bank 1,200 miles away on localist grounds?) According to its latest annual report, 46% of UMB’s money is invested in securities, and another 6% is on deposit with other banks—which comes to over half. They don’t provide details on the securities, but they’re almost certainly a mix of Treasury bonds, mortgage bonds, and corporate bonds—utterly conventional financial market stuff. Just 37% is out in loans—and 0.8% in small-business loans, beloved of the small bank fanclub. They are big regional players in mutual funds, wealth management, and private banking, all moderately to seriously upscale stuff. And, like the big guys, they’re looking to make more money out of fees, rather than traditional deposit-taking and loan-making.
Henwood made a similar argument back in November, when the Move Your Money campaign got a big push through the Huffington Post.
When Huffington unveiled her scheme, I took advantage of the gadget on her website (the Move Your Money Project) that allowed you to enter your zip code and came back with a suggested list of virtuous, meaning small, banks. I thought I’d look into some of the suggestions that emerged when I entered by home zipcode, 11238. One, the black-owned Carver Federal Savings Bank, is a major financer of the gentrification of predominantly black neighborhoods in Brooklyn and Queens. As those neighborhoods get richer, Carver boasts, it’s partnering with Merrill Lynch (a subsidiary of the Bank of America) to offer wealth management services to the flusher new residents. Another suggestion, Apple Savings Bank, has about three-quarters of its assets in securities like U.S. Treasury bonds, not local loans. They don’t come much bigger than the U.S. Treasury. And a third, New York Community Bank, which even features that precious word in its name, financed a private equity group that bought up a lot of apartment buildings in New York in the hope of squeezing out the rent-regulated tenants and replacing them with more lucrative ones paying market rents. With the real estate bust, the PE firm is having trouble servicing its debts, and the residents of its buildings are suffering as services are cut further.
Why do small banks often end up putting their money in US treasuries or unsavory financial schemes? One major reason:
many small banks have more money than they can profitably invest locally. As Barbara Garson showed in her wonderful book, Money Makes the World Go Around, the portion of her book advance she deposited in tiny upstate New York bank was probably lent via the fed funds market to Chase, where it entered the global circuit of capital. This is not at all uncommon. Money is fungible, protean, and highly mobile even when it looks locally rooted.
Ditto for credit unions, another favorite of the Move Your Money crowd.
Many credit unions are fine little enterprises. But they too have the more money than they know what to do with problem. According to the Federal Reserve’s flow of funds accounts, 58% of their assets are in individual loans, mostly for cars and houses. The balance is invested in bank deposits and bonds. The bonds are Treasury and federal agency securities. Again, anything but small and local. And should they get an influx of money, it’s highly likely that most of it will go to these sorts of bonds. In fact, , more than half the growth in credit union assets over the last three years has gone into Treasury and federal agency securities. Less than a quarter went to mortgage loans, and consumer credit (like credit cards and auto loans) have actually declined. There’s no way they could accommodate even a small fraction of our near-$8 trillion in bank deposits without turning to bigtime securities or Merrill Lynch wealth management services.
In the long run, it’s possible that small banks and credit unions could pump more money into the local economy, but it would require fundamentally changing their culture, processes, and technical skills plus building a bunch of supporting institutions that would make putting significantly more money into the local economy a reasonably safe bet.
The other really big problem with small-is-beautiful banking is that small banks are not, to put it mildly, progressive institutions. Your local small bank may support local kids’ baseball teams. But when it comes to struggles for social justice, they’ve often used their power to drop the hammer on our side (e.g., White Citizens Councils). If Move Your Money was encouraging folks to put their money into small local banks and then organize together to make them a more progressive force, that would be a different story. But just moving our money isn’t going to change that balance of power.
Mind you, a Move Your Money strategy might still make sense as a way of giving folks practical experience that they have more power than they realize. I could certainly see it as one small step along the path to helping people discover their power. But in and of itself? I’ll leave the last words to Doug:
Getting banks under control is a matter of politics, not individual portfolio allocation decisions. Sure, you may get friendlier service and lower fees from a credit union—but you’re not really doing anything politically transformative by moving the money.
