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Thursday, March 24,2011

Hate your bank?

Banks have been in the news a lot since the Wall Street meltdown of 2008. States across the nation have had to take massive budget cuts, national spending nearly halted, and people started losing their homes. Small businesses were denied loans necessary for successful startup and expansion. The list goes on. Chase and others have recently come under fire for foreclosing on homes, prompting substantial analysis of our nation’s financial system. Everyone can point to the problem, but few are pointing to a possible solution: banking locally. The benefits that individuals can make by simply switching from a national chain to a community (local and independent) bank or credit union are numerous, but infrequently discussed.

The Boulder County Independent Business Alliance (BIBA) is spear-heading a local movement to help offset the damage we’ve suffered economically. The “Move Your Money” campaign is an effort to get Boulder residents to switch from national banking to a more stable institution. The campaign has already begun, but the major effort will be launched the first week of June, in alliance with several community banks and credit unions.

It is sad to note how little time our education system — at any level — devotes to economics and financial understanding, especially to personal finance topics. This lack of information compounds the public’s misunderstanding of the nature of our banking system, and only recently have we seen the results of this lack of knowledge.

There are some subtle differences between credit unions and banks, but the underlying distinction between a local institution and an entity like Bank of America is huge, says LeAnn Faulkner of the Boulder Valley Credit Union.

“Credit unions are democratically operated,” Faulkner says. “Members are part-owners that have a voice in the direction of the credit union via an elected, volunteer board of directors.”

Being a member of a credit union or community bank allows for greater control of your assets. You can control how and where your money is invested. This has prompted a surge of socially conscious banking endeavors, like the New Resource Bank in San Francisco. They do not loan money to tobacco, oil or weapons-related industries. If you want to know where small banks and credit unions invest your money, just ask them.

After three years of continued pressure, “Bank of America, Citi, Morgan Stanley, Credit Suisse, JPMorgan Chase and Wells Fargo have successively passed public policies limiting their financial relationships with coal operators that practice mountaintop removal (MTR) coal mining,” according to the Rainforest Action Network.

Unfortunately, this change in policy was the result of self-interest sensibility — not necessarily because it was the right thing to do.

“Money talks — and it is saying loud and clear that mountaintop removal coal mining is a bad investment,” says Rebecca Tarbotton, executive director of the Rainforest Action Network. We need banks that are more in-line with our ethical values, and can make decisions accordingly.

In addition to the global benefits of banking locally, there is also a personal incentive to switch. Not only do you receive more personal, enhanced customer service, but you save more money.

The general sentiment around national banks has always been “Bigger is better.” Not so, anymore. Although there is much debate regarding how big an institution must be before its efficiency begins to plummet (and customer fees skyrocket), the estimated average is $500 million in assets. Many of us think that bigger means better, but with banks, it is usually the opposite. The bigger the bank, the bigger the fees associated with our ATM cards and checking accounts. Big banks have a bloated infrastructure that actually increases costs on the user end. Many credit unions have ATM surcharge-free networks with fewer penalties against your hard-earned cash.

One other essential thing to consider when choosing between the big bank and the small bank is the economy as a whole. In addition to fiscal responsibility — and a little extra cash for you — local banks and credit unions also enjoy more fiscal stability because they’re not involved in credit-default swaps or derivatives. Depending on their charter and licenses, some local banks and credit unions cannot even buy stock, which means they avoid making risky investments with your money.

Moreover, Stacy Mitchell, a researcher with the New Rules Project and author of Big-Box Swindle, argues that local banks and credit unions are “the engines of small-business lending.”

“Most community banks concentrate their lending efforts in their own markets,” says Richard Hofstetter, president and CEO of Lighthouse Bank in Santa Cruz.

“Community banks … take deposits from their local community and reinvest them, in the forms of loans, back into their local communities,” Cruz says, a stark contrast to larger banks, who denied loans to small businesses following the $700 billion bailout.

Looking at Boulder, a vibrant hub of alternative energy manufacturing, tech development and natural products sales, the community’s efforts have thrived because we support a strong and prolific network of locally owned and independent businesses. We can add to our already strong local economy, and do even better, by banking locally.

When you invest in a local bank or credit union, you are helping to build a better community.

For more information on how to get involved with BIBA’s mission, sign up for updates, as well as find links to convenient “switch kits” (a five-step process to transfer all your savings and loans, effortlessly), visit www.boulderindependentbusiness.org.
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