Posts Tagged ‘banks’

Have you ever considered why you bank with Chase or Bank of America instead of your local community bank or credit union?

Now might be a good time to reconsider your banking habits, since we keep hearing how lending has dried up at many of the big banks. According to a recent New York Times story, the nation’s 8,500 community banks have plenty of money to lend and are itching to supply borrowers with needed cash, if only they could find them.

What’s the big difference between a bank like Citigroup, the world’s largest financial services network, and your local savings and loan? For one thing, community banks have come out on the other side of the recession in pretty good shape. That’s because they mostly steered clear of such exotic financial instruments as loan securitizations and credit-default swaps and instead stuck to the basics.

Consider the philosophy of Rusty Cloutier, CEO of Lafayette, Louisiana’s MidSouth Bank, as told by the New York Times:

Cloutier says he believe his job as a banker is to know who runs a business well and thus may survive a downturn. Community banks are well equipped to make that kind of judgment because, as clichéd as it sounds, they really do know their customers. “If a guy owes you seven or eight million dollars, you better know everything there is to know about him,” Cloutier [said]. Cloutier knows scores of people just from coaching local basketball, baseball and football teams. Like most community banks, MidSouth sponsors a long list of organizations and causes; the shelves in Cloutier’s office are lined with awards from civic organizations. And because community banks often sit on the board of nonprofits and local businesses, they know their local industries.

The mega banks, on the other hand, make loan determinations based on mathematical models and mainly measure creditworthiness based on income and a look at the consumer’s credit score.

Why do consumers continue to bank with lenders who accepted billions in taxpayer bailout dollars after their greed and widespread abandonment of standard lending standards dismantled the global monetary system? Many of these same banks are now trying to bilk yet more money from responsible credit card borrowers before more consumer-friendly laws go into effect next year.

As the Times points out, the five largest American banks (that would be J.P. Morgan Chase, Bank of America, Citibank, Wachovia, and Wells Fargo) control 40% of all deposits, yet community banks still make 43% of all small business loans under $1 million. Significantly, less than 1% of all community banks have failed since January 2008.

Simon Johnson, a former chief economist at the International Monetary Fund, said our financial system would be healthier if we abandoned the mega banks in favor of a network of regional banks and community banks, the Times reported.

Meanwhile, back in Lafayette, Louisiana, Mr. Cloutier says that “trying to make a loan today is like trying to feed my 7-month-old grandson green peas.”

All I can say is that if we all act like sheep, we’ll continue to be led around by a halter and collar. Let’s connect the dots between what we read about in the news and how it affects our everyday financial lives. Then let’s decide not to condone or contribute to the mess that big banks have gotten us in by continuing to give them our business, whether it’s in the form of a loan, checking account or credit card.