Wednesday, November 23, 2011

Banks vs. Credit Unions in the Financial Crisis - with Graphs

In recent discussions of the relative merits of using banks or credit unions, one argument in favor of the latter asserts that they generally fared better than banks in the financial crisis. The reason for this, the argument goes, is that for-profit bank shareholders are only liable for losses up to the value of their investment, while they stand to profit from the returns on both their own investment as well as the depositors' funds. Thus, since it's rational to take greater risks when gambling with other peoples' money than with your own, for-profit banks tended to take on risky investments during the real estate bubble.

By contrast, since they are owned by their members, the conflict of interest between shareholders' desire for greater returns and depositors' desire for increased stability simply doesn't exist in credit unions. They thus tended to take fewer risks during the boom, and, as a result, didn't take as grave of a hit as commercial banks when the economy went bust.

In order to see if this thesis reflected the actual experience of the financial crisis, I crunched some numbers from the NCUA and FDIC. The results, which were published yesterday by the Motley Fool, seem to confirm credit unions' relatively superior performance in the bust. Read the full article, complete with pretty graphs, here.

Monday, November 14, 2011

Bank Transfer Day: A Model Victory for the Occupy Movement

Frustrated by a number of negative experiences involving her bank, LA gallery owner Kristen Christian decided to draw the line on October 4th, 2011, when she created a Facebook event entitled "Bank Transfer Day." Calling for people to move their money from banks to credit unions on November 5th, the action quickly went viral. By the intended date, more than 70,000 people had indicated their intent to participate on the Facebook event page, and the Credit Union National Association estimated that more than 650,000 new accounts were opened in the month before November 5th (more than had been set up in the entirety of 2010), and a further 40,000 people joined on the day itself.

When trying to explain this phenomenon, the dominant narrative coming out of both the credit union movement and the mainstream media as a whole is that Bank Transfer Day was primarily a reaction to the decision by large banks (most visibly Bank of America) to institute debit card fees. This ham-handed and poorly-executed policy change, the story goes, struck a nerve and instigated normally passive banking consumers to take Christian's call to heart by revolting en masse and moving their money to credit unions.

Thursday, November 3, 2011

Bank Transfer Day, Populism, and the Strategy of the Credit Union Movement

After 27 year-old LA gallery owner Kristen Christian created the virally spreading "Bank Transfer Day" Facebook event in early October as a response to some infuriating experiences with her bank, a fascinating conversation has been taking place within the credit union movement. On the one hand, many are quite excited to see the burst of positive media attention that the event instigated. They eagerly hope that, in the short term, the tens of thousands of people who have RSVPed on Facebook will follow through on their intentions and deliver a wave of new members to credit unions. From a longer, more strategic perspective, the aspiration is that, by spreading awareness of the credit union model, the event will contribute to fundamentally and positively advancing the movement's place in the world of financial services.