On the "Move Your Money" Initiative

Right before New Years the Huffington Post ran an article, "Move Your Money: A New Year's Resolution," that encouraged people to move their money from one of the big six national banks into small, local banks. Since then the initiative has launched into full swing, with its own website and a bustling facebook page , garnering it extensive media coverage in both the mainstream press and the netroots.

In general I support the idea of this campaign, and if you're still looking to make a slightly late New Year's resolution, you should hop on the bandwagon. Just because you didn't break up with Bank of America last year, doesn't mean you can't do it this year. And be sure to provide yourself with the proper scaffolding for making any serious resolution come to fruition.

My one issue with the campaign is that that it specifically focuses on local banks and largely ignores credit unions. At first the MYM campaign didn't mention credit unions at all until a large number of people (myself included) wrote to them pointing out that credit unions are yet another viable option with their own unique benefits over both the big banks and their smaller, local counterparts. But even on the website, MYM still somewhat dissuades people from choosing credit unions over local banks:
Not all community banks are risk free. Some of them got involved in the same risky behavior that took down some of the biggest banks.

We suggest two options for looking into the small and community banks in your area:


Thanks to the volunteer services of a group called Institutional Risk Analytics (IRA), you can get a listing of the most sound community banks near you. IRA lists only banks that, according to its rating system, which is based on government data, get a grade of “B” or better.

Credit Unions: Many folks have written us suggesting that people should examine credit unions. Like the FDIC for banks and thrifts, the National Credit Union Administration insures the deposits of credit unions and is a good resource for financial data on specific institutions. Credit unions do not disclose financial data in the same way as FDIC-insured banks. As a result, credit unions are not presently included in the IRA ratings database, which covers over 8,000 federally insured banks and thrifts. IRA is developing a method to rate credit unions in a way that is comparable to the IRA bank stress ratings. We’ll be updating users of “Move Your Money” on this issue early in 2010.

The implication of this write-up on credit unions is that because credit unions don't disclose their financial data in the same way as banks it is therefore impossible to tell whether or not credit unions engage in the kind of risky behavior that we all want our financial institutions to steer clear of. Unfortunately, this misses the fundamental difference between credit unions and banks (both the large ones and the community ones). Unlike at a bank, a depositor at a credit union is an owner of the credit union and most credit unions subscribe to the "one member, one vote" model. That means that the credit union is legally responsible to you and not to its external shareholders like any bank is; at a credit union you are in effect the shareholder. This might even mean that there could be a bit of democracy in our economy (imagine that!).

The larger point here is that while moving from a behemoth oligopolistic financial institution to a small bank is definitely a step in the right direction, it doesn't solve the core problem. The issue is that people do not have any say or control over what happens with their finances once they deposit them somewhere for safe keeping. While a local bank may be less likely to indulge in risky or fraudulent behavior than a big bank, nothing is actually stopping them from doing so. You're essentially relying on the benevolence and good will of your local bank manager to not take advantage of you. Moving your money to a local bank doesn't create deep structural change, only cosmetic change. Only through democratic control of the economy can we foster financial stability that benefits everyone, not just the elites.

Let's see if the HuffPo crowd catches on to the difference.

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