June 30, 2010

Put Your Money in Smaller Banks: A Guest Post

Last week, I confessed that my BP boycott was probably shortsighted, but didn't know what else to do.
This prompted some interesting Facebook conversations about what else we should be boycotting. Which leads us to a guest post today from my friend, Bry Willis. I offer a quick counter-point at the end.
Put Your Money in Smaller Banks
A guest post by Bry Willis "When promoting small banks, we are more importantly advocating local banking. Local banking keeps money closer to the community, so the money saved there is more likely to be invested nearby. It's also better for small businesses, because proportionally, smaller banks lend more to small businesses than larger banks. When a local bank writes a mortgage, they also have a greater interest in scrutinizing the creditworthiness of the borrower. The largest banks tend to repackage these mortgages, passing the risk on to another party, so they have little vested interest in the quality of the loan or the community where the loan originated. Small banks were not responsible for the recent financial meltdown and failure of the derivatives market. They were also not creating these instruments and putting depositor money at risk.  Credit unions are another local alternative. They are similar to banks, but they are owned by their depositors. People with common interests pool their funds and earn interest on their deposits by providing loans to one another—think of the Bailey Building & Loan in the holiday classic film, "It’s a Wonderful Life." Also, despite what you may assume, bigger banks statistically have higher fees and worse interest rates than small banks. Smaller banks are also more likely to provide you personal service—to treat you like a human instead of a number. You are more likely to speak with a human instead of winding through a labyrinth of telephone service automation: “Press 5 to talk to someone. We care about your call; we just don’t care enough to hire someone to speak with you in the next 20 minutes…” As the adage goes, “Think globally. Act locally.” These banks you should avoid like the plague: Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley." -------------------------------- Thanks Bry! Although, I have a follow-up question on your logic. You have convinced me that local banks are better in my self-interest, from a sheer capitalist point of view. If this changes in the future, and I can get better interest rates and lower fees from a large bank with better efficiencies, should I switch?
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