Last week, I saw two very different reactions to moves made by two different banks. One bank was once considered "too big to fail." The other is a tiny blip in the banking world.
How they reacted to upcoming regulatory changes says everything about their corporate culture.
Bank of America made the incredibly stupid decision to start charging debit card users five dollars a month for the privilege of spending their own money electronically rather than by causing BOA to process their checks.
On the same day, a local bank in Richmond Kentucky decided to close a small branch.
In my new book, Wealth Without Wall Street: A Main Street Guide to Making Money, I encourage people to use debit cards and not use credit cards at all. My primary reason for a no credit card philosophy is to keep people from going into debt and to encourage using a debit card.
Bank of America went a different direction. They want to gouge customers, especially small customers who can't afford $60 in fees a year, in an attempt to make an estimated $3 billion in profits.
Just three years ago, the Congress of the United States authorized nearly $100 billion in bailout money to Bank of America. BOA took some of that taxpayer money to buy Merrill Lynch.
Instead of saying "Thank you," Bank of America chose to tell the taxpayers "F______ you".
I got the word today that a local bank is closing the branch near my office. Like a lot of financial institutions, profits have to be down and they are tightening their belts where they can.
What they did not do is try to stick it to their loyal customers. I don't see them charging five dollars a month for debit cards.
I have a chapter in Wealth Without Wall Street about a cause Arianna Huffington started -- 'move your money' from a "too big to fail" bank to a local bank.
I moved my money a long time ago. I won't be paying debit card fees to some Wall Street bank.
Moebs Services research shows that overdraft fees in 2009 averaged $35 for large banks compared to $25 for small banks. A similar gap existed with bounced check fees and stop-payment orders.
Personal service is another point in favor of small banks. According to J.D. Power and Associates (and quoted on the moveyourmoneyproject.org website), "Small banks have consistently rated higher in overall customer satisfaction than their Wall Street counterparts and that gap has only widened in the last few years."
Supporting small business is another benefit that 'move your money' touts. According to FDIC data, 57 percent of bank assets are with the 20 largest banks, but only 28 percent of small-business lending comes from that top 20. Small banks (defined as under $1 billion in assets) provide 34 percent of the loans, and mid-size banks (assets between $1 billion and $10 billion) provide 20 percent of the loans.
Although data shows that moving money from a Wall Street bank has benefits for both the consumer and Main Street, a primary motivation for the 'move your money' movement is to decrease the power of Wall Street banks and their role in the financial markets.
It took $700 billion in taxpayer money to bail out Wall Street banks in 2008. Most of the losses for Wall Street came from casino-like trading in financial instruments called derivatives. Few of the losses came from loans, deposits, or services traditionally done by banks.
It was more profitable for big banks to act as gamblers rather than as deposit and lending institutions. The quest for profits, documented in books such as The Big Short: Inside the Doomsday Machine by Michael Lewis and Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- and Themselves by Andrew Ross Sorkin, set Wall Street up for a huge crash.
Wall Street banks have not learned much from their 2008 near-death experience. According to a report issued by the U.S. Comptroller of the Currency, in the fourth quarter of 2010, four of the biggest Wall Street banks held 95 percent of the derivatives for the entire banking industry.
In other words, JP Morgan Chase, Citigroup, Bank of America, and Goldman Sachs have 95 percent of the exposure to losses in the derivatives market. The other 6,349 banks in the United States have 5 percent.
It's stunning to see Wall Street banks go back into a derivatives market after being burned so badly. It's like watching someone jump out of a sixth-floor window, survive the fall, and go up to the eighth floor and try it again. Bank of America's move on debit cards was the classic sign of a bank that doesn't "get it." It's the classic jump out of the eighth floor window. Totally clueless as to how people on Main Street would react.
The debit card debacle makes it easy to convince you that if you have money at Bank of America, you should be moving it.