plus, how your local community bank may be doing things differently
We at Better Banking Options talk a lot about the benefits of banking with local and mission-driven banks. Banking is different from many other industries in that it provides an essential service, one that our economy cannot function without. This is why a lot of the behavior of the largest banks is seen by many experts as dangerous. The largest banks, or as we call them, mega banks, are considered “too big to fail” because they hold the assets of so many people that in the event of failure, our government would have no choice but to bail them out (like during the 2008 sub-prime mortgage crisis). Otherwise, it would have a drastic effect on our overall economy.
Mega banks hold a lot of power in this country. However, their enormity only further enables them to put profit above their members, and a lot of them are using your deposits for activities that don’t invest back into your community. Lending institutions of all sizes should exist to get capital into the hands of people who need it.
Here are five reasons to move your money out of your mega bank and into your local community bank.
1. Mega banks’ hiring and advancement practices are often discriminatory.
You probably saw a story floating around a couple of weeks ago that the president of Wells Fargo said that “there is a limited pool of Black talent to recruit from.” However, many senior executives in corporate America disagree and many have questioned the methods with which banks are recruiting talent for overlooking BIPOC candidates. Additionally, Wells Fargo is also infamous for its employees refusing service to black customers.
Even while many banks commit to increasing the numbers of BIPOC they hire and promote, they are not required to report their diversity or inclusion data, and the little data that is collected isn’t publicly available. In a report conducted by Maxine Waters and others on the 44 largest banks, it was found that bank executives and employees are still primarily male and white and that banks have limited investment in diverse firms.
2. They act like they’re the more lucrative option while charging lots of fees.
A lot of people choose mega banks because of promotions like JPMorgan Chase’s, which offers $200 to every person that opens a checking account and sets up direct deposit. However, the bank also charges $12 every month for that checking account, making back their money in about 16 months. Big banks like this often emphasize their modern services and conveniences, but mega banks make billions every year charging their customers ATM, account and overdraft fees, increasing their already enormous profits. While small charges may not seem like a lot, they disproportionally hurt low- and moderate-income (LMI) households. Small local banks and credit unions aren’t pressured to make profits in the same way as mega banks, and instead usually only charge as much for their services as they need to keep operating.
3. They use your deposits to make speculative trades instead of investing in the real economy.
One of banking’s original purposes was to invest in wealth-building small business loans and mortgages. Loans like this give LMI families a chance to build multi-generational wealth, or something that can be passed down to children and grandchildren. When you put your money into a local bank, they can leverage your money through these kinds of loans in your community, specifically.
However, some of the money placed in accounts at mega banks goes to speculative trading in stocks, which are only beneficial for the banks’ shareholders. For example, JPMorgan Chase suffered $6 billion in losses on high-risk derivatives in 2012 (and then tried to hide this from regulators and investors). To appease their shareholders, mega banks are constantly competing with one another to see who can increase short-term profits the most, and this leads to unsafe and unhelpful banking practices. Engaging in speculative trading is only one example of that.
4. They invest in corporate and commercial loans instead of household wealth-building loans.
Like we mentioned in the previous point, publicly-traded mega banks are looking to make as much profit as possible. While there are many smaller banking institutions which specifically cater to the banking needs of their community, mega banks tend to do a lot of corporate and commercial lending, as these are high-dollar investments which yield higher profits. While these kinds of lending are important, wealth-building loans like housing and small business loans help people without wealth create it for generations to come, and these are the loans most needed in our helping our communities develop.
5. They divest from and underserve low-income neighborhoods.
In 2018, JPMorgan Chase opened 185 new branches, with 71% being in affluent areas. In the same year, they also closed 187 branches, with about half being in neighborhoods where household income is below the national median of $60,336. This is only one example of a continuing trend of Megabanks moving out of LMI neighborhoods in favor of opening branches in affluent ones. Yet again, mega banks choose profit over people.
They not only avoid low-income neighborhoods in their branch placement but in their lending. While not all banks are required to report DLI-HDMA data, it essentially is the percentage of housing lending which is done in LMI neighborhoods (we get this data through NCIF’s site). Only one-fifth of Chase’s housing lending goes to LMI neighborhoods, and other mega banks have very similar statistics.
There are so many reasons to move your money out of your mega bank that we had a hard time choosing just five to write about. It’s now more important than ever to divest from mega banks and invest in local, mission-driven banks.
While the worst hasn’t even hit many Americans yet, we are all suffering economically from the COVID pandemic, and banks are suffering too; even mega banks have predicted enormous losses due to the economic effects of COVID. However, the mega banks can afford the losses. Many rural and small banking institutions cannot. Even more than they already are, our communities will suffer if they don’t have access to wealth-building loans.
Use our search engine to find a Better Banking Option near you and move your money there TODAY.
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