We’ve finally figured out that it’s good to buy produce at our local farmers markets and shop at neighborhood merchants, but there is something about our finances—perhaps a general lack of understanding about how banking works—that still makes us tend to “go with a name you can trust.” So with the filmic zeitgeist of the fragile, small-town Bedford Falls Building & Loan lurking in our collective imagination, we stick with the big guns—the ones, as it turns out, we can trust least.
Consumer complaints about banks are up 42 percent since 2008, according to the Better Business Bureau, while a recent Zogby survey found that 32 percent of displeased customers have contemplated leaving their big banks, and 14 percent have. Justified or not, there is outrage over executive compensation and big banks receiving “bailout” funds from the $700 billion Troubled Asset Relief Program (TARP) that is leading some customers to rethink their banking choices.
There are more direct personal affronts, too, from über banks—usurious credit card fees; and nearly unbelievable individual stories—active bank account holders who’ve had their safe deposit boxes and all the contents destroyed.
Wells Fargo, Citigroup, Chase and Bank of America may have trillions of dollars in assets, but those funds aren’t necessarily directed to creating strong, local communities—that sucking sound you hear is more likely to be our hard-earned dollars going to Wall Street and exotic global locations. Community banks, which generally have assets of $1 billion or less, tend to be more attuned to local environs. For example, small businesses accounted for less than 20 percent of large banks’ loan portfolios, while they represented half of the loans for community banks in 2009.
According to the Independent Community Bankers of America, “Community banks channel most of their loans to the neighborhoods where their depositors live and work, helping to keep local communities vibrant and growing.” Out of almost 8,200 U.S. banks, nearly 8,000 are locally owned community banks. Of these, some 300 are in California, with 75 percent of those fitting the $1 billion or less definition.
So despite comments from power players such as Charles Prince, Citigroup’s former chairman and CEO, who pronounced the days of “small, local-based banks and financial institutions” past when recently addressing the Financial Crisis Inquiry Commission, a significant number of individuals and small businesses moving to big-bank alternatives could further strengthen locally based banking.
“Community banks are important because we know our clients and we know the markets in which they operate,” says L. Bruce Mills, president and CEO of Partners Bank of California. “We focus on finding the right products and services based on understanding the customers’ needs, as opposed to trying to fit the customer into a specific box or product,” adds Mills, whose bank serves business-to-business customers in Southern California.
Major banks are good for customers who fit into menu-driven boxes that work on a mass scale. But community bankers, such as Mills, differentiate themselves by very personalized service and a deeper community understanding. These bankers have a more hands-on approach to working with customers and talking about their exact banking needs. “Where else can you reach out and talk to the president of the bank?” asks Mills, rhetorically. “That’s a community bank.”
W. Henry Walker, a fourth generation CEO of Farmers & Merchants Bank (F&M), also espouses the value of service-driven community banking guided by sound judgment. A full-service bank that provides commercial and small business banking, too, the Long Beach-based institution has served Southern California for more than 100 years and is recognized as the strongest bank in the state and one of the strongest in the country.
F&M’s net income for the fourth quarter of 2009 totaled $10.1 million versus $2.9 million for the prior year period, which, Walker says, indicates the escalating trend in people switching from big banking institutions to community banks. “The growth of our core deposit accounts is a testament to the bank’s strength and stability,” says Walker of his bank, which did not invest in subprime loans during the stoked-up housing market.
Close ties between customers and employees, many of whom have worked with the bank for more than 20 years, are another distinguishing difference at F&M. “You can call and someone who knows you and your business will pick up the phone to help you,” says Walker.
Credit Unions
Another alternative to the large bank is the credit union, a concept born of necessity in 19th century Europe to mitigate for food shortages, which found its way to America and was formalized by the Federal Credit Union Act of 1934.
In contrast to for-profit banks, where earnings go to shareholders, credit unions are nonprofit, member-owned institutions. This means credit union earnings go to members in the form of lower loan rates, higher savings rates and lower fees. As with FDIC-insured banks, credit union accounts are insured up to $250,000 through the National Credit Union Administration and the federal government.
Regulated by the federal government and the chartering state, credit unions offer many of the same services as banks, such as ATM access, direct deposit, online banking, credit cards and loans. Anyone can join a credit union, which serves a field of membership. The field is based on a commonality, be it geographic location, employer or membership in a group such as a union, school or homeowners’ association. Joining a credit union is generally a minimal $5 to $10, though there may be a minimum balance requirement.
“Credit unions have realized growth in areas where banks are declining, or are experiencing growth at a faster rate than banks,” says Cathy Dominguez, marketing vice president, Kinecta Federal Credit Union, which added 18,000 new members in 2009, bringing total membership to 200,000. Formerly the Hughes Aircraft Employees Federal Credit Union, the organization was, again, a solution born out of need in 1940. Hughes employees spent too much lunchtime driving to downtown Los Angeles to do their banking; the answer was an onsite credit union.
Earth Ethics
Reinvesting “surplus” to benefit Earth and its people is a founding principle of the Permaculture Credit Union, which subscribes to putting funds in the local community and not investing in destructive technologies, exploitative industries or insensitive social practices.
“We’ve learned how to run PCU with permaculture ethics and loan policies that are reflective of that,” says Wesley Roe, PCU board member and a founder of the Santa Barbara Permaculture Network. PCU offers sustainable discount loans for fuel-efficient vehicles and organic farming and supports energy conservation through second mortgage loans that might include solar heating, photovoltaic energy systems, weatherizing and rainwater collection for PCU customers, many of whom are in the San Francisco Bay area, Santa Barbara and Los Angeles, as well as across the country.
When PCU began in 2000, it was the first new credit union chartered in New Mexico in 30 years. “There was a real commitment by people to deposit with us, and we had a broad base to draw from,” says Roe. “The first year, we took in $1 million in deposits; we’re now at $4.3 million and will grow this year to more than $5 million.”
As PCU continues to grow, the Santa Fe-based organization is exploring micro-lending, a program in which members pool funds to provide small loans of a few thousand dollars to groups and businesses. This is part of what’s becoming known as the slow money movement. PCU is particularly interested in looking at the agricultural base—what used to be the basis of wealth in America—to regrow wealth.
PCU has a diverse membership that includes 1,000 members, including rural farmers and urban dwellers growing food within a city. Shana Levy McCracken, chief strategist with Gigantic Idea Studio in Oakland and a PCU member, was first introduced to the financial institution several years ago while earning a Green MBA. In the market to buy a Toyota Prius, she learned PCU offered favorable loan rates for hybrids and alternative fuel vehicles.
“I was impressed with the level of service and got a lot of hand-holding for a modest loan,” says McCracken. “The CEO actually helped me find a car—not just a loan.”
McCracken’s experience has shown her there’s a higher level of accountability with the credit union. “It’s an excellent alternative and a great way to live your values,” she says. “I feel like part of a community; they stay in touch, and I know where the money is going with PCU.”
Moving funds to community banks and credit unions, particularly ones such as PCU with a sustainable model, may just be the start of rethinking how we do our banking, be it handling basic checking and savings to sourcing funding for the growth of our small businesses. What’s clear is that failures seen in the large, complex financing structures are leading people to consider alternatives.
The idea of state-owned banks is gaining traction as well. North Dakota operates the only state-owned bank, and its longevity has generated interest from other states in exploring this option to help mitigate risk and stabilize local economies. In all the upheaval of 2009, the venerable institution (it was established by legislative action in 1919, driven by a populist movement) never lost its footing or was in danger of being absorbed by the bigger players. Au contraire, it earned record profits.
Some have even suggested that Facebook, with its large user base, might have the potential to move into the realm of banking services. Relocalizing enough business transactions to create communities with stronger financial pillars just might create real positive change out of financial chaos.
For more information on changing banks, visit findabetterbank.com and http://moveyourmoney.info.
After researching this article, L.A.-based writer Maria Fotopoulos (on Twitter @TurboDog50) is reconsidering her banking options.
