Rhetoric is easier than revolution, as some clunky efforts to punish big banks at the local government level have shown.
Occupy Wall Street protesters and other pro-consumer groups are pushing leaders in some liberal U.S. cities to withdraw municipal funds from big banks and deposit the money with small local banks or credit unions. Elected leaders in Austin, Texas, and Portland, Oregon, have proven receptive to those calls.
But offering moral support to the local-is-better movement is one thing. Actually depositing public funds with small institutions is another.
Consider what happened last month in the Texas state capital. Responding to pressure from Occupy Austin, the city council asked the city manager to consider moving money out of Bank of America (BAC) and into small banks and credit unions. After soliciting bids from 112 institutions for a five-year banking contract, the city reached its verdict: shift money from Bank of America to … wait for it … JPMorgan Chase (JPM).
"They went from the second-largest bank to the first," said John Duffy, a self-described anarchist who's running for Austin city council.
To be sure, groups like the Occupy movement and Move Your Money are proving themselves to be a real annoyance to large banks, and not just in liberal outposts like Portland, Austin, Seattle or San Francisco. Not only have they persuaded elected officials to hear their pleas, they've also influenced consumers to move their money. Javelin Strategy & Research estimated that 5.6 million U.S. adults switched banks in the months following last November's Bank Transfer Day, and about 11% of those switchers moved from a big bank to a small bank.
To date, however, there is scant evidence that city governments are shifting their funds to small banks or credit unions.
No small bank or credit union submitted a bid for the city of Austin banking contract. Even if some small institutions had bid, it's doubtful they could have handled the city's complex banking needs, Austin City Manager Marc Ott wrote in a March 19 memo to council members. Austin requires specialized fraud prevention and the ability to clear securities transactions, among many other services. Austin processes $5.1 billion in deposit transactions per year, far more than most small institutions could handle, he said.
"The core objective of municipal banking is to ensure that taxpayer funds are safe and secure," Ott wrote.
Some credit unions are big enough and sophisticated enough that they could, in fact, handle those demands, said Richard Dines, director of state and league affairs at the Credit Union National Association. But CUNA is not aware of any big city that has shifted funds to credit unions.
"There is a lot of talk about it," Dines said. "It may eventually happen, but we're not seeing a lot of evidence that anyone has gone all the way through with it."
Fight in Portland
There is certainly plenty of chatter about taking city funds out of megabanks. Portland Mayor Sam Adams in February introduced a proposal to allow the city to spread its deposits among multiple credit unions and local community banks. If approved, Adams' idea would put millions of dollars into play. Portland has more than $37 million invested in five banks, including about $30 million with Umpqua Holdings (UMPQ) and $7.2 million with Wells Fargo (WFC).
"The city … recognizes the value of having a portfolio that includes local investments in community-based institutions," Adams said in a press release.
Portland has $250,000 deposited with a $130 million-asset, Portland-based institution, Albina Community Bancorp. But it's the only community bank that holds Portland city deposits. Albina's president and chief executive, Cheryl Cebula, was not available for comment, an assistant said.
Adams' measure has not yet come to a vote, but it would set a bad precedent, said Linda Wilhelms Navarro, president and chief executive of the Oregon Bankers Association.
"Credit unions were never intended to serve as public depositories," Navarro said.
Credit unions could not meet the Oregon state requirement that institutions holding public funds post collateral beyond the $250,000 insurance coverage provided by the Federal Deposit Insurance Corp. and the National Credit Union Administration, Navarro said.
"Credit unions don't have the collateralization programs in place to protect those deposits," she said. "The city needs to be a good fiduciary of the public's money."
Exceptions to the Rule
There are ways around the collateral requirements and complex financial needs of large cities, said Jared Gardner, a former commercial banker who organized the nonprofit group Oregon Banks Local to promote small banks and credit unions. Cities or counties can spread their deposits among multiple institutions, avoiding the $250,000 insurance limit.
"There is a lot of money at the public-fund level, and if there are ways to move it into the communities we'd like to see more of that," Gardner said.
Bank of Marin Bancorp in Novato, Calif., has managed to sway a few municipalities to ditch their large money center institutions in the last year and has another in the works, said Russell Colombo, president and chief executive of the $1.4 billion-asset company. The move was part of a large push to support hometown businesses, he said.
"We want people to shop the local hardware store," Colombo said in an interview. "And I think the cities and towns should be thinking the same thing. Should they support a local business or should they do business with a bank that is based in some other city or country?"
Among its government clients are school districts, a community college, sanitary districts and a few towns and cities in the North Bay area. The company is actively pursuing others, too, Colombo said.
The problematic Austin case, though, feeds the skeptics.
Some local banks and credit unions had initially expressed an interest in bidding on the city banking contract, including Laredo, Tex.-based International Bancshares (IBOC), Cortez said. International Bancshares did not return a call seeking comment.
One problem for small banks might have been that Austin lumped 30-plus banking services into one contract, said Dave Cortez, an Occupy Austin member who has organized protests against big banks. Occupy Austin has asked the city council to postpone for one year the awarding of its banking contract to JPMorgan Chase, and break up the services into multiple contracts. That would allow small banks and credit unions to submit bids, he said.
Robert Barba contributed to this story.