Wednesday, December 8, 2010

Bank Local

Bankers are not very popular these days. Neither are they considered very trustworthy. A quick search on Google or Bing brings up quite a collection of articles about declining trust. Here are two examples.
A healthy mistrust of banking is very trendy. Distrust of large financial institutions is as American as apple pie. The second and third Presidents of the United States were both leery of banks. President John Adams was no friend of banks when he said,
Banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good.
Thomas Jefferson also had some scathing words.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. 
The problem with the universal condemnation of banks and bankers is that it is misplaced. There are several banking systems. Adams and Jefferson were writing about a national bank. The recent financial meltdown was caused by another type of bank, the “too big to fail” banks and financial institutions. These are the banks that consumer guru Clark Howard calls “giant monster mega-banks.” However, locally owned and community based banks still deserve our trust and respect. If anything good comes out of the financial meltdown and the near collapse of the big banks, it may be a return to banking at locally owned and community based banks. If this happens, then it is part of a larger trend of doing business locally.

Many modern banks and financial institutions are primarily transaction processors and speculators, but those are new roles for bankers. Banks, especially in small town America, used to be the institutions that helped start small businesses and made it possible for people to buy homes. When little boys and girls saved their allowance or paper route or babysitting money, they dutifully took it downtown to the bank, and the friendly banker put it into an account and marked the deposit in a passbook. Banks encouraged people to put money away for a rainy day or to save for big purchases. Before the days of MasterCharge (now MasterCard) and BankAmericard (now Visa), banks encouraged customers to save for holiday shopping with Christmas Club Accounts. Now banks encourage customers to take on high interest rate debt. It is hard to say which came first, the rise of giant banks or the change in social mores from planning and saving to debt. In either case, too much debt is a huge part of the morass in which the world finds itself today. It turns out that easy credit had consequences.

The solution is to return to banking as it used to be. If you know where to look, you can still find a friendly banker. There are still places where children can deposit their allowance into passbook accounts. You can still find bankers that will discuss your business plan and work with you to help your business succeed, and there are still banks that will lend you money because the loan committee knows you personally, and they consider your character as important as your FICO score. A community bank  in Central Texas runs an ad where the banker asks, “Who is your banker?” He’s not asking the name of the bank. He’s asking the name of the person at your bank that knows your name. Do you bank where someone knows your name?

Local and community banks in your town also support neighborhood business. They have a vested interest in the success of the local grocery or pharmacy or hardware store because they shop in those stores. When the banker lends money to someone to open a new restaurant, it is not simply another loan to generate profit for the bank. Instead it is a new business for the community and another place that families, including the banker's family, can go out to eat.

Neighborhood bankers don’t just want local business to make enough money to repay their loans. They want local businesses to be successful so that the community is prosperous. When local banks make a profit, the money stays in the community and supports local business.

If you long for the days of a friendly banker that knows your name and not just your account number, if you want to do business with someone that will take the time to learn your business and wants you to succeed, if you want to bank with someone that is part of your community and not just a branch of some giant corporation, then it is time for you to start banking with the locally owned banks in your community.

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