Bank Transfer Day and its Prospects for “Main Street” Banking

November 5, 2011 marked “Bank Transfer Day” around the United States, as initiated by 27-year old Los Angeles art dealer Kristen Christian, via this facebook page in early October. The movement, purposefully or not, coincided with the Occupy Wall Street movement and spread throughout the United States, denouncing big banks and the Wall Street financial industry. Perhaps the greatest alleged perpetrator, and possibly the greatest victim, of the Occupy and Bank Transfer Day movements was Bank of America, who announced earlier this year it intended to implement $5.00 monthly service fees for certain deposit accounts. Bank of America’s plan imploded when other big banks failed to follow suit with their own fees, and Bank of America became the sole target of criticism for its planned fee policy.

The result, in part, was the concept of Bank Transfer Day, where consumers were urged to withdraw their deposits from big banks and move their money to smaller and locally run credit unions. The result, according to the Credit Union National Association (CUNA), was that more than 40,000 people signed up for accounts at credit unions on November 5th, corresponding to about $80 million in deposits.  CUNA represents most of the chartered credit unions in the United States, and reports that its members saw increases in new account activity during the month of October and early November, prior to Bank Transfer Day.

While Bank Transfer Day created headlines and long lines at credit unions on a Saturday morning, did it really have the desired impact on Bank of America and other big banks?  The answer is probably not, given the size of the market share that Bank of America and other top banks in the United States hold, a loss of even tens of thousands of customers in a given week probably does not represent much of a blip on the banks’ radars. In fact, most large banks are flush with deposits right now, given the unstable market and the desire for many people and investors to remain liquid. Additionally, banks are benefitting from the low interest rates on deposit accounts, which means that many consumers are not even shopping rates to find the best return on their deposits, as has historically been the case.

One significant impact of the transfer of wealth from big banks to smaller, community banks or credit unions is the effect on lending. In part, a bank’s ability to lend depends on the amount of deposits the bank holds. The more deposits it has, the more the bank can lend to borrowers, which, ideally, results in an influx of cash into the marketplace, and better earnings for lenders. While the withdrawal of $80 million or more from big banks on Bank Transfer Day may not have much impact on the big banks, it creates opportunity for smaller lenders and credit unions, which then have greater flexibility in making loans. While perhaps only coincidence, CUNA also reports that its credit unions made about $90 million in new loans on Bank Transfer Day.

Thus, while the desired impact of Bank Transfer Day on Wall Street may not have been met, the results, and especially if the trend continues, might create new opportunities on Main Street.

Posted by Attorney Jeffrey R. Schmitt. Schmitt practices in commercial litigation including banking, real estate, construction, and other matters for individuals and businesses.