TOPICS > Economy

Should Consumers Move Their Money From Megabanks to Smaller Banks?

April 6, 2010 at 12:00 AM EDT
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In the latest in a series of reports making sense of the economy, Paul Solman explores the differences for consumers between small community banks and the "too-big-to-fail" financial giants.

JIM LEHRER: And next tonight: What’s behind a campaign to move money out of big banks and into smaller ones?

NewsHour economic correspondent Paul Solman has that story. It’s part of his ongoing reporting on Making Sense of financial news.

Actor: That’s George Bailey. That’s him when he was 12.

PAUL SOLMAN: An online video gone wildly viral, with more than half-a-million hits in its first two months, a mash-up of “It’s a Wonderful Life.”

JIMMY STEWART, actor: Enter the Martini castle, that joy and prosperity may reign forever.

PAUL SOLMAN: George Bailey and his small bank vs. venal, villainous big banker Henry Potter.

ACTOR: Times are bad, Mr. Potter. A lot of those people are out of Work.

LIONEL BARRYMORE, actor: Then foreclose.

ACTOR: I can’t do that. These families have children.

LIONEL BARRYMORE: They’re not my children.

PAUL SOLMAN: The online video also cuts in clips from the current evening news.

MAN: So, what you’re saying is, those 14 are too big to fail?

TIMOTHY GEITHNER, U.S. treasury secretary: I don’t think, Senator, I want to use those words?

PAUL SOLMAN: But this video, brainchild of, among others, money-manager-turned-political-activist Rob Johnson, doesn’t just sit there. It wants us to do something.

ROB JOHNSON, Roosevelt Institute: Move your money.

PAUL SOLMAN: Move your actual money, that is, out of the too-big-to-fail behemoths and into smaller community institutions.

ROB JOHNSON: And I hope it sets a warning to the big banks that their sociopathic behavior is not acceptable any longer.

PAUL SOLMAN: Well, it can be argued sociopathic is over the top, but, with their hidden fees, toxic securities, off-balance-sheet vehicles, and bursting bonuses, to boot, the big banks have surely earned some public skepticism.

Meanwhile, the Obama administration has proposals to pare the big banks down to size, such as tax the bigger ones more, require more capital and less risk, ban risky trading for banks that receive federal support.

But moving your money is more direct, and all you have to do, says Johnson, is start at

ROB JOHNSON: You can watch the movie. And then you can put in your zip code. And IT gives you a list of A- and B-rated small banks where you can put your money safely.

PAUL SOLMAN: Johnson says the list of banks is being searched 45,000 times a day and that the move your money movement is gaining political momentum all over country.

In Los Angeles, the city council is holding hearings on withdrawing all city funds from too-big-to-fail banks.

MAN: The city has got to make them accountable.


PAUL SOLMAN: In New Mexico, a similar bill would move billions of state dollars into small banks and credit unions.

BRIAN EGOLF, D-N.M., state representative: And we’re going to hopefully send a message that we support the community banks and the credit unions that support our communities.

PAUL SOLMAN: And one candidate for governor of Oregon has made moving the state’s money a centerpiece of his campaign.

MAN: Big banks have proven they cannot be trusted to act in the public’s interest.

PAUL SOLMAN: But what’s it’s actually like to move your money to a local bank? On the Web site, I found one very close to home.

WOMAN: Good morning.


It was friendly enough…

WOMAN: How are you?

PAUL SOLMAN: … and neighborly, though I don’t really know Scott Wilson.

And you’re just down the block from me.

MAN: That’s right, yes.

PAUL SOLMAN: And do you most of your banking here?

MAN: All of it.

PAUL SOLMAN: All of it?

MAN: All of it.

WOMAN: I like this bank. I have been with this bank for over 30 years.

PAUL SOLMAN: You’re also a customer of this bank, obviously.

WOMAN: Yes, I am.

PAUL SOLMAN: And you like it?

WOMAN: Love it.

JIMMY STEWART: All right, now, Mrs. Thompson, how much do you want?

ACTRESS: But it’s your own money.

JIMMY STEWART: Now, never mind about that.

PAUL SOLMAN: By this point, Jimmy Stewart was getting a run for his money, which reminded us of the economist who had first sent me the move your money video, Larry Kotlikoff. His new book, however, is called “Jimmy Stewart Is Dead.” And personal experience suggests why.

LARRY KOTLIKOFF, author, “Jimmy Stewart Is Dead”: The large banks will gobble up the small banks. My own experience is, I started an account a long time ago with Bay Bank.

PAUL SOLMAN: Four mergers later, small Bay Bank is Bank of America.

LARRY KOTLIKOFF: And when I went into refinance my house a few months ago, I saw a clerk who knew nothing about me, nothing about my family, had just arrived into that job from some other state. And that is what we’re dealing with here. We’re not dealing with Jimmy Stewart. He’s dead.

PAUL SOLMAN: Village Bank CEO Ken Brennan, though, is trying to impersonate him — without the stammer, of course.

KENNETH BRENNAN, president & CEO, The Village Bank: I’m getting a library card for the new community library.

PAUL SOLMAN: The local library, closed by budget cuts, its reopening made possible by the support of local businesses, including Village Bank.

WOMAN: We’re very grateful for that support.

PAUL SOLMAN: Now, did you use your library when you were a kid?

KENNETH BRENNAN: I did. I used this as a child. Yes, I grew up here. And this was my branch library.

PAUL SOLMAN: So, are you indulging a kind of CEO’s prerogative here, or…


KENNETH BRENNAN: Maybe you could call it that, yes. But most of our employees work and live here in the community. So, their families can take part and use this as well.

PAUL SOLMAN: It was getting a little sweet for a jaded journalist. But, fortunately I move in various circles. So, I asked a really big banker, why shouldn’t I move my money?

ROBERT KELLY, CEO, BNY Mellon: If you think you can get other products and services that are superior to a large bank, then go for it.

PAUL SOLMAN: Robert Kelly, CEO of Bank of New York Mellon, who suggests thinking back just 25 years.

ROBERT KELLY: We had 20,000 banks in this country. Now we have 8,000 banks. And my guess is, 10 years from now, we will have 5,000 banks or 4,000 banks. It’s good to have lots of competition. But the reality also is, is that bigger banks offer, generally, better products and services at, generally, really competitive prices. And the longer-term trend will be fewer smaller banks in the nation for that reason.

PAUL SOLMAN: And, as Nobel laureate economist Paul Krugman reminded us recently, small is not necessarily beautiful.

PAUL KRUGMAN, columnist, The New York Times: It’s possible to have a banking crisis even without too big to fail. It was a lot of small banks that collapsed the financial system in the 1930s.

PAUL SOLMAN: Indeed, 140 banks failed in the past year, with another 702 just added to the FDIC’s problem list.

Moreover, says Robert Kelly:

ROBERT KELLY: We also have a gigantic economy, which you can’t run with a lot of really small banks. You need big, successful, sophisticated, profitable banks.

PAUL SOLMAN: But the Village Bank is a $600,000 million business, says CEO Brennan, big enough to offer almost anything I would need.

KENNETH BRENNAN: Size does matter, but you don’t need to be a large institution in order to be successful as a financial institution today.

CLAIRE MESSINA, The Village Bank: How often do you use your ATM? Are you a local ATM user? Do you travel a lot?

PAUL SOLMAN: Yes, I use my ATM a lot, and I travel a lot.

No problem, says the Village Bank’s Claire Messina. Yes, but how about new technology? At my big bank:

I can deposit a check and it takes a picture of the check and then gives me the deposit slip with the picture, so I feel as if I had my deposit verified.

CLAIRE MESSINA: Well, we don’t have as advanced technology as that. That is a great feature.

However, the extra feature that I like that we have that the bigger banks don’t have is that we’re going to call you if your deposit is incorrect, so you know.

PAUL SOLMAN: You mean, if I make a mistake, you’re going to call me?

CLAIRE MESSINA: Mm-hmm. Because we’re a tight-knit group, this is what we do for our customers.

PAUL SOLMAN: After all, it’s a community bank.

KENNETH BRENNAN: Ninety percent of the deposits that we take in, we lend back out into the community in form of home mortgages, consumer loans, and small business loans to local businesses operating within our communities.

PAUL SOLMAN: We asked the CEO to show us a couple.

KENNETH BRENNAN: I used to play golf here as a kid growing up.

MAN: The buckles usually go on the outside.

PAUL SOLMAN: Larry Smith lives across the street from me, rents canoes and kayaks a mile away in the summer, cross-country skis and snow shoes this time of year.

MAN: You lift up your right foot and put it down. You lift up your left fight and put it down. That’s your lesson.

PAUL SOLMAN: Larry has been a Village Bank borrower for nearly 30 years, to keep the snow in shape, for example.

MAN: I just brought a new grooming machine here for $70,000, which I did a line of credit, quick advance, that worked out very nicely.

KENNETH BRENNAN: His success is our success. So, I think we have a great partnership and have had for a number of years.

PAUL SOLMAN: Last stop, a nearby group home for developmentally disabled adults.

KENNETH BRENNAN: Hi. How are you? Ken Brennan. Nice to see you.

PAUL SOLMAN: This is one of a dozen or so such projects financed by the Village Bank.

KENNETH BRENNAN: Good to see you again.

PAUL SOLMAN: The bank’s advantage, coming up with quick cash for a down payment, says nonprofit developer Josephine McNeil.

WOMAN: Nobody is going to hold the property while we wait six or eight months to get the money together.

PAUL SOLMAN: Again, the bank says, it’s because it knows its borrowers, like Nancy Slamin, who runs the group homes.

How many years have you been working with the Village Bank?

NANCY SLAMIN, executive director, NWW Committee for Community Living: Thirty years.

PAUL SOLMAN: Thirty years?

NANCY SLAMIN: Thirty years.

Our clients, people who live in this house and in our other homes, do their banking with staff at the Village Bank.

PAUL SOLMAN: Do you bank at the Village Bank also?


PAUL SOLMAN: And you guys do too as well?

MAN: Yes.

WOMAN: For over 40 years.

PAUL SOLMAN: This is begin to go seem like a complete put-up job.

PAUL SOLMAN: No, I mean, really. This is, like, ridiculous. Nobody is going to believe this, watching this on camera.

KENNETH BRENNAN: You don’t believe?

PAUL SOLMAN: No, I believe. I — but, literally, everywhere we go — I mean, are these ringers? What have you done here?

KENNETH BRENNAN: No, no, no ringers. These are just our — our customers.

PAUL SOLMAN: And, so, that’s the case for moving your money to a community bank. The case against?

That it’s a futile, if feel-good, effort to turn back the clock. We will see.

JIM LEHRER: For the record, one of the banks Paul mentioned in his report, Bank of America, is a NewsHour underwriter.