Daily Video

April 7, 2010

Small Banks vs. Big Banks

A campaign has been gaining momentum around the country to encourage consumers to move their money from banks deemed “too big to fail” into smaller, community institutions. States and cities are considering legislation to move their dollars into smaller, local banks, and a Web site has popped up that provides a list of reputable small banks for those interested in moving their money.

But, some economists say moving money will not necessarily prevent another financial collapse. In the 1930s, the Great Depression began after many small banks failed, and some experts argue that today’s complex economy cannot function without large, profitable banks.

NewsHour Economics Correspondent Paul Solman looks at what’s behind the “move your money” movement.

Quotes

“We’re going to hopefully send a message that we support the community banks and the credit unions that support our communities.” – State Rep. Brian Egolf (D-N.M.)

“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.” – Robert Kelly, CEO, BNY Mellon

“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 Krugman, economist and New York Times columnist

“Size does matter, but you don’t need to be a large institution in order to be successful as a financial institution today.” – Kenneth Brennan, president & CEO, The Village Bank

Warm Up Questions

1. What do banks do?

2. What does the term “community bank” mean?

3. At the beginning of the recession, the government stepped in to help financial institutions it thought were “too big to fail.” What did the government fear would happen?

Discussion Questions

1. If the risky behavior of these very large institutions nearly brought the US economy to another Great Depression, do you think government regulation should limit the size of banks?

2. Can citizens take matters into their own hands by moving their deposits from these “too big” institutions to smaller local banks? How/why could this have a significant impact?

3. What are the costs and benefits to the consumer of making that move? Do you think local banks care more about their depositors?

4. What was the speaker’s argument who said “move your money” was a futile effort?

Additional Resources

Video Transcript

Fear of “Zombie Banks” Drives Government to Deal With “Toxic Assets”

Business Desk

The Exchange

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