Make the Shift. The Power of Moving Your Money.

Why switch to a local bank? Local banking builds real wealth in our community.

1. Get the Same Services at Lower Cost
Most locally owned banks and credit unions offer the same array of services, from online bill paying to debit and credit cards, at much lower cost than big banks. Average fees at small banks and credit unions are substantially lower than at big banks, according to national data. Studies show that small financial institutions also offer, on average, better interest rates on savings and better terms on credit cards and other loans.

2. Put Your Money to Work Growing Your Local Economy
Small businesses, which create the majority of new jobs, depend heavily on small, local banks for financing. Although small and mid-sized banks control less than one-quarter of all bank assets, they account for more than half of all small business lending. Big banks, meanwhile, allocate relatively little of their resources to small businesses. The largest 20 banks, which now control 57 percent of all bank assets, devote only 18 percent of their commercial loan portfolios to small business.

3. Keep Decision-Making Local
At local banks and credit unions, loan approvals and other key decisions are made locally by people who live in the community, have face-to-face relationships with their customers, and understand local needs. Because of this personal knowledge, local financial institutions are often able to approve small business and other loans that big banks would reject. In the case of credit unions, control ultimately rests with the customers, who are also memberowners.

4. Back Institutions that Share a Commitment to Your Community
The fortunes of local banks and credit unions are intimately tied to the fortunes of their local communities. The more the community prospers, the more the local bank benefits. This is why many local banks and credit unions are involved in their communities. Big banks, in contrast, are not tethered to the places where they operate. Indeed, they often use a community’s deposits to make investments in other regions or on Wall Street.

5. Support Productive Investment, Not Gambling
The primary activity of almost all small banks and credit unions is to turn deposits into loans and other productive investments. Meanwhile, big banks devote a sizeable share of their resources to speculative trading and other Wall Street bets that may generate big profits for the bank, but provide little economic or social value for the rest of us and can put the entire financial system at risk if they go bad.

Learn about our member local banks and
credit unions in Santa Fe.

This article by Derek Hunting, of Sonoma County Go Local, is adapted with data specific to New Mexico.

The Local Banking Multiplier

We all learn the basics of banking in high school economics, and, probably more of us, from the classic holiday movie “It’s a Wonderful Life.”  The key concept we learn about banks is that they don’t keep all of our money locked away in their vaults, but rather, lend most of the money we deposit to other people and businesses for business loans, mortgages, student loans, etc.  This is known as fractional reserve lending, a process that allows banks and credit unions to lend 90% of their deposits, while keeping 10% in reserve to have enough cash on hand for withdrawals.

There is an important part of this process that is often overlooked, but is the key to maximizing the impact of the local banking multiplier . . . loans count as new reservable deposits. This means that those 90% of deposits that banks can lend to others become new deposits once the dollars make it back into a bank, and then 90% of those deposits can be lent, and then 90% of those deposits, and so on.  In theory, banks can create new loans, essentially new money, totaling nine times the amount of the original deposit if 100% of the loan proceeds make it back into a bank each time.

Confused?  Below is a diagram that illustrates the process using actual figures the state of New Mexico.

These numbers are no small potatoes!  There is approximately $1.6 billion deposited in banks* in New Mexico, of which $1.5 billion or 94.5 percent resides at “non-local” banks (as of 6/30/2010, information gathered from the FDIC website).  If we can shift just 10 percent of these deposits, or $157 million, to local banks it could generate up to $1.4 billion in new local lending.  If just 25 percent of all the loans in the chain make it back into local banks, the $157 million could still create $182 million in new local lending.

The Local Difference

All banks can harness the power of the fractional reserve multiplier, so it matters where banks lend and what they support with their loans.  For most of the non-local banks operating in our community, the deposits they get from Sonoma County make up less than 1 percent of their total deposits – with the loan side of the coin likely very similar.  This makes it very likely that our deposits at these banks are lent outside of the community, and those loans typically aim to maximize profit for absentee owners rather than support local citizens and enterprises.

The data show that, during these tough times, small banks are lending disproportionately more to support small businesses than their large and medium sized peers (See charts below).  Truly, our small community banks are the engines that keep our local economy moving.

Icing on the Cake

Still not convinced you should make the shift?  Worried that you won’t get the same account features you do with the big banks?  Think you’ll have to pay more if you switch?  Think again.  Recent national surveys have shown that most small banks offer the same core account services as the big banks, and also charge lower fees (see charts below).  You get the services you need, for less money, all with the personal service you expect.  It’s a win-win-win!

Make the Shift

It’s easy to shift your banking.  Our local banks and credit unions will walk you through the process, step-by-step, to get your accounts and loans moved over and working for the local economy.  Visit our Local Banks page to learn more about our Bank Local members.
* Does not include deposits in credit unions.

This video, made by Go Local Sonoma County, illustrates how banking locally impacts a community.