“You keep writing about not spending money at businesses that ship their money over seas, but what about banks taking Troubled Asset Relief Program (TARP)?” Jon, my favorite libertarian, enquired one morning over coffee. Fair question—and one that had been nudging its way along periodically throughout the year. There are lots of opinions about the Federal Bailout of the banks and they way they have handled the TARP funds. One increasingly louder response has been the move to support smaller community banks.
The “Move Your Money” movement has been popularized by the Huffington Post crew this year, but the idea behind a community bank is not new. “Your grandfather banked with the same banker in Dayton (Indiana) for over 50 years! Do you know that?” my father asked when we discussed this idea. “They went to the same church. There was a lot more done face-to-face and on trust, then, of course.”
Does it have to be that way? Jock and I have our joint account at First Citizens, which is also where we have the bookstore account. For me, a big part of the attraction to banking there is that when I call I don’t get a phone menu; a real person answers! Better yet, a real person recognizes my name and asks about the store. When I walk through their doors, I am greeted by name with a smile. On the few occasions I have had problems (mostly of my own making), they have always been resolved quickly, again with a smile and an enquiry about how things are going at the bookstore. During times of family crisis, the staff has sent cards and called to offer help. Is that really so much different than what Daddy described?
Besides Move Your Money, Bank Local and The Community Banking Initiative have also both been actively promoting this concept. Much of the literature between the three groups focuses on the importance of credit unions in communities. “Hmmmm…” I wondered. “What exactly is the difference between a credit union and a bank? Aren’t they the same thing?”
According to the Credit Union National Association, “Credit unions are financial institutions formed by an organized group of people with a common bond. Members of credit unions pool their assets to provide loans and other financial services to each other.”
It reminds me of a scene in “It’s a Wonderful Life” with George Baily on building a loan: “But your money is in Joe’s house, and the Kennedy house, and Mrs. Maltin’s house, and 100 others,” George says. “You’re lending them the money to build, and they’re gonna pay it back as best they can.” Maybe I’m being too sentimental.
The Credit Union National Association goes on to point out these differences between credit unions and banks:
• ‘“Credit unions are not-for-profit cooperatives, owned by members and operated by volunteer boars.
• Other financial institutions are owned by outside stockholders and controlled by paid boards.
These factors allow credit unions to pay dividends to their members (not shareholders) and offer them lower loan rates, higher savings rates and fewer service fees.”
When I opened my first checking account as a teenager, the banker explained to me that Federal Deposit Insurance Corporation guaranteed the safety of my deposits up to $100,000 (an astronomical number to me then!) Now the FDIC, a Roosevelt Era program designed to protect depositors after the large scale bank failures in the Depression, insures deposits at banks up to $250,000—but do they protect deposits at credit unions, too? NC State Employees’ Credit Union deposits are insured by the National Credit Union Administration (www.ncua.gov), “an independent federal government agency that charters and supervises federal credit unions and insures accounts in federal and most state-chartered credit unions across the country through the National Credit Union Share Insurance Fund (NCUSIF), a federal fund backed by the full faith and credit of the United States government.”
Apparently, they also guarantee deposits up to $250,000 on personal accounts. The current incarnation of the NCUA was established in 1970, but like the FDIC (which oversaw its administration from 1942-48) The Federal Credit Union Act of 1934 was a Roosevelt-era response to the bank failures of the Depression. In short, the answer is: Yes, deposits at credit unions are guaranteed up to $250,000.
There are several credit unions in our area, including State Employee’s Credit Union, Corning Federal Credit Union and East Coast Credit Union.
Now, the next question: Is there a difference between a community bank and a big bank—besides bail-out money? Is there a definition for a community bank? “I bank local” defines community banks as under $10 billion in assets. Ben Bernanke, in his 2006 speech to the Independent Community Bankers of America National Convention, defined a community bank as “any bank or thrift organization with total real (2002) assets of a billion dollars or less.” $1 to 10 billion? That’s quite a range. Looking at the chart (left), neither First Citizens nor State Employees Credit Union would meet that definition. Maybe, instead of assets, we could find some features that define community banks? According to the Independent Community Bankers of America:
“Community banks are the primary source of lending for small businesses and farms. Even though they comprise just over 23 percent of the banking industry by assets, community banks with less than $10 billion in assets made 67 percent of outstanding loans to small businesses and provided 62 percent of the initial dollar amount.”
Community banks’ boards of directors are made up of local citizens who want to advance the interests of the towns and cities where they live and where their banks do business.
“Research has shown average fees for checking accounts and other depository services are lower at community banks than at large, multi-state institutions.”
The last two points, about the board of directors and lower fees with higher customer service, are echoed by the Move Your Money, Bank Local and Community Banking Initiative literature. Referring back to our handy-dandy chart, we can compare the fees in a basic checking account. The overdraft fee seems to be the same for the three banks, the only one with a lower fee is State Employees’ Credit Union. The required opening balance at Bank of America is actually lower than at the other two banks and the out-of-network ATM fees seem to be standard across the board.
But what about the note under the NC State Employees Credit Union fees: “Unless instructed otherwise $1 of the monthly maintenance fee for checking accounts is automatically donated by the member to the SECU Foundation.”
What is the SECU Foundation? What do they do? According to their Web site (www.ncsecufoundation.org): “The SECU Foundation promotes local and community development by primarily funding high impact projects in the areas of housing, education, healthcare and human services. The State Employees’ Credit Union Board of Directors has chartered the SECU Foundation to help identify and address community issues that are beyond the normal scope of State Employees’ Credit Union. While individual members may not have a large impact; collectively and cooperatively the Foundation can go a long way toward helping solve problems in our neighborhoods, schools and our community at large.”
So that seems to leave the board of directors. Let’s start by taking a look at the board of directors for Bank of America. Of the 13 directors at Bank of America, their credentials include: Visa, the Federal Reserve, The FDIC, and the Carlyle Group—not exactly hometown heroes.
Board of directors at First Bank: The 18 directors listed have strong NC ties. The companies listed in their bios are easily searchable and located in NC, including Piedmont Funeral Home, Troy Lumber Company, State Senator Dan Blue and Former State Treasure Richard Moore.
Board of Directors at First Citizens: Earlier this year when we began looking for a loan for the bookstore, we spoke with First Citizens Bank, where we have our business account. While meeting with the loan officer to discuss our options, one of the reasons she cited for First Citizens solvency in shaky financial times was that the bank was still controlled primarily by a family. A quick glance at the board of director’s page on the First Citizen’s Web site shows a couple of interesting foot-notes, disclosing the relationships between the directors:
“Ms. Ames is the niece of Mr. F. Holding. Mr. F. Holding Jr. is the son of Mr. F. Holding. Ms. Connell is the daughter of Mr. F. Holding. Mr. F. Holding, Jr. and Ms. Connell are siblings.”
The next footnote reads: “Certain directors also serve as directors of other publicly held companies. Mr. F. Holding Jr. serves as a director of Piedmont Natural Gas Company, Inc., Charlotte, NC. Mr. Durham serves as a director of Triad Guaranty, Inc., Winston-Salem, NC.”
At least 11 of them run North Carolina-based companies that can be easily located.
All of my research, in essence, was sparked by a question about TARP. In fact, excessive executive compensation by tax payers in the face of a struggling economy has been a re-occurring question this year. America’s Union Movement (AFL-CIO) tracks executive pay in publicly traded companies and compares it against the average worker’s pay. Here’s how our three compare:
Bank of America: “In 2009, Kenneth D. Lewis received $4,209,666 in total compensation. By comparison, the average worker made $32,048 in 2009. Kenneth D. Lewis made 131 times the average worker’s pay.”
First Bank: “In 2009, Jerry L. Ocheltree received $770,824 in total compensation. By comparison, the average worker made $32,048 in 2009. Jerry L. Ocheltree made 24 times the average worker’s pay.”
First Citizens Bank: “In 2009, Frank B. Holding Jr. received $835,485 in total compensation. By comparison, the average worker made $32,048 in 2009. Frank B. Holding Jr. made 26 times the average worker’s pay.”
Other compensations can be researched at www.aflcio.org/corporatewatch/paywatch to compare others’ pay.
It appears that developing a rigid definition of a community bank is difficult. But certainly smaller banks have a closer connection with the people of the area they serve. The question remains: How important is that to you?
Gwenyfar Rohler is the author of “The Promise of Peanuts: A real life fairy tale about a man, a village, and the promise that bound them together.” Available at www.OldBooksonFrontSt.com, and all profits go to Full Belly Project (www.fullbellyproject.org).