Home > Uncategorized > Bank Transfer Day: Big Noise, Little Effect?

Bank Transfer Day: Big Noise, Little Effect?

Jonathan Salem Baskin recently posted an article about Bank Transfer Day under the title "Big Noise, Little Effect?"


It's an interesting article, but I think it misses a larger point about how fractional reserve banking works and why even small customers moving their money from a big bank to a local bank or credit union hurts. I seem to be having difficulty posting a comment on the article, so I will leave my comments on the article below:

Of course you realize that with fractional reserve banking the banks are able to loan out 9 or 10 times what they have in deposits. So, even a small accoung is "leveraged" multiple times. Sure, bigger depositors are relatively more important, but don't think for a minute that Bank of America or any of the Too Big to Fail banks seriously wants thousands of "small" customers to walk away and put their money into a community bank or credit union.

I don't believe that Bank of America is running all of these feel good commercials about all they do in the local community as a public relations exercise. They lost enough customers due to their poorly thought out debit card fee that it hurt their bottom line.

At 10 times leverage, every $10,000 withdrawn is $100,000 in loans that they can't loan at interest. You also need to think that the banks have certain capitalization requirements as well and enough withdrawals by any size customers will also effect those ratios. New customers of any size require an investment of time and money to acquire. Current satisfied, or at least sitting still, customers cost less to maintain than the cost of going out and finding new ones.

Banks lie all the time about their profitability. I don't think we should believe for a minute that they don't care and aren't paying an economic price when enough small customers decide they have had enough and take their business elsewhere.

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