Bank Transfer Day: Struggling Smaller Banks Can Use the Boost


Much of the fallout from big-bank fatigue and today’s “Bank Transfer Day” activities is benefiting nonprofit credit unions and their swelling membership ranks, leaving struggling smaller community banks as the somewhat forgotten stepchild.

Kristen Christian, Bank Transfer Day’s sole organizer, said she investigated her options and found that credit unions were the best and most logical choice.

Bank Transfer Day is a “clear message that conscious consumers won’t support companies with unethical business practices. It’s time to invest in local community growth,” says the protest’s Facebook page.

Indeed, the Credit Union National Association, a trade group that represents the industry, reported yesterday that at least 650,000 consumers have joined credit unions, where fewer fees and better interest rates are often the benefits of membership.

The surge in new credit union members has evolved since Bank of America announced a $5 monthly debit-card fee on Sept. 29.  Bank of America dropped the plan this week in response to a massive public outcry. Other major banks, including Chase and Wells Fargo, also abandoned similar plans.

To a much lesser extent, smaller community banks that often cater to small businesses may also feel some of the positive ripple effects from the anger at big banks. And the community banks can use the help.

Since the financial crisis erupted three years ago, community banks have not had the same access to capital as the larger banks and they are more ex­posed to distressed commercial real estate and non-performing loans.

That was the conclusion this week in the latest report to Congress by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). In late 2008, TARP was the primary bailout program for banks of all sizes which drew much  public scorn.

But the Special Inspector General’s report said community banks need a “clear exit path out of TARP” that is implemented well before a scheduled rise in the TARP dividend — beginning in the fall of 2013 – that these banks will have to start paying the U.S. Treasury, putting further strains on access to capital. Most of the big banks of repaid their TARP bailout funds.

“The 5% TARP dividend rate will rise to a very expensive 9%.,” the report said. “SIGTARP is concerned that when the dividend rate increases, many of these banks will remain in TARP, but still be unable to access new capital.”

About 400 smaller banks, many of them struggling from the downturn in commercial real-estate markets, haven’t repaid TARP, the report said. As of Sept. 30, about $20 billion remained outstanding.

Small business lending is feeling the ripple effects of the TARP-stifled community bans.

The $30 billion Small Business Lending Fund, which the Obama Administration has been pushing much of this year, was suppose to help small business growth and hiring, a vital component of economic recovery.

But when the program recently ended, only $4 billion from the fund was lent out to banks. Of the $4 billion, only half went to provide loans to small businesses and the remainder went to pay off the banks’ TARP debt.

David Meinert, a Seattle restaurant owner, is an example of the small business owner that the fund’s targeted banks was meant to help. Meinert told ABC News that he is moving his $3 million in business out of Bank of America and Chase as part of the Bank Transfer Day movement. He said he was refused a new line of credit.

“That kind of money and my level of business doesn’t really matter to them,” Meinert told ABC, referring to the big banks.


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