The US economy is full of industries dominated by major corporations. I believe one reason consumers face high prices is that there are too many segments of US economy that simply are not competitive because of oligopoly pricing. We often don’t have much choice when we want to buy items like cable service, an airline ticket, cellular phones or service. The problem is getting worse, not better, as we see consolidation ranging from grocery stores to music labels, and little consumer choice in things like buying concert tickets. You can probably name lots of other examples.
The US banking industry is already dominated by a few behemoths. But things could get much worse. With the failure of a few regional banks, some are spreading fear that could create runs on more banks. No bank, no matter how solid, can withstand a bank run. But when deposits are withdrawn from smaller banks, the big banks are usually the ones who get the deposits. And, as we see today, when smaller banks fail, bigger banks often get to pick up the pieces at favorable prices.
If you are fortunate enough to have more that $250,000 in savings, I understand why you may want to keep your money in an account with a bank that is “too big to fail.” But please consider opening another account at a smaller bank or credit union, where you can deposit less than $250,000 and may still benefit from FDIC (or, in the case of many credit unions, NCUA) insurance.
The three banks that recently failed made some serious, stupid mistakes. And you may ask, why should I help others that may be just as stupid? Shouldn’t they suffer? Why should I care if there are only a few major banks?
You should care. First, the major banks already have too much power, and too big a voice in US politics. The fewer the banks, the less competition there will be. Second, big banks are in the business of using their deposits to provide credit to major corporations. With large amounts of deposits, that’s where the profits are. But community banks and credit unions are more likely to lend in their community. They are far more likely to offer credit to a hardworking small entrepreneur who is trying to start or maintain a small business, and needs credit for a chance to survive and perhaps to thrive. Individuals and small businesses need access to credit to compete.
If you make a deposit, will the small bank or credit union succeed? I don’t know. Most will make good decisions. All of them are run by humans, and some will make bad choices or encounter unexpected risks. Businesses fail all the time, and that includes banks and credit unions. But you don’t have to take that risk. Open an account that is insured.
If there is a small bank or credit union in your area, please consider opening a small account there after understanding how your deposit is insured. Please be aware that many credit unions have insured deposits up to $250,000: Deposits Are Safe in Federally Insured Credit Unions As the website points out, “Credit union members have never lost a penny of insured savings at a federally insured credit union.” In addition, even if the bank is not in your area, you may be able to go online and open an account at a minority owned bank. You can find lists of Black, Asian, Native American and Women owned banks here: Minority Bank. As with any bank, please first determine whether and how your deposit is insured. Minority banks are small, but usually provide credit in the minority communities they serve, helping people start and maintain small businesses. By opening an account at one of those banks, you are helping provide credit to those who are underserved by our big banking system.
We need small businesses. We need an economy where a poor individual with a great idea has a chance to start or maintain a business. Small banks and credit unions are part of that equation. I understand that the regional banks that failed didn’t serve that market. But regional banks generally can serve the small businesses that grow to middle market companies, and provide some competition for the major oligopolies. And if many regional banks start to fail, community banks and credit unions will be the next to lose deposits. So I believe opening an insured account at a mid-sized regional bank is also a good choice.
I would love to turn on the news and hear that deposits are flowing out the ten largest banks into smaller banks and credit unions.
The good news here is that WE have the power. We face so many issues in this nation where we can only make change through mass movements and electing new politicians. But this is one important issue where we don’t need help from any politician. There is no need to knock on doors, organize a demonstration or call a representative.
This time, WE have the power!
And WE don’t have to take any risk.
If WE want to live in a nation where there are more than a few major banks, where struggling individuals and small and medium size businesses have a chance at the credit they need, and a where banks compete, then WE can vote with our money.
If you can, please consider opening an account with a smaller bank or credit union.