Re: Money Center Banks don't want your money

[Ralph Shnelvar <ralphs@xxxxxxxxx>]

Dear Donna:

Forgive me, Evan, I'm putting words in your mouth.  What Evan wanted to know
is whether it is socially better to use a local bank or a multinational.

You did a good job explaining why it is better for Evan to use a local bank
but you didn't address his implied question.

My comments, below, try to answer the question for Evan.  Please forgive my
strident answers.



On Thu, 11 Nov 2004 13:11:40 -0700, you wrote:

>Money Center Banks don't want your money, Evan.  We're small potatoes 
>requiring a lot of service and that costs money.  The local banks will take 
>your money & use it locally.

No, Donna, they will take your money and invest it where they will get the
best rate of return (adjusted for risk).  To do otherwise would be a breach
of fiduciary responsibility to their shareholders.  It would also be a
breach of trust to the community that depends - more than anything else - on
the bank staying open.

>We NEED the local banks for increased service 
>and reduced charges.

Certainly we need local banks.  Local banks have one big advantage over the
money center banks: They are closer to local people and can therefore
"cherry pick" opportunities that the bigger banks would either ignore or
don't have the resources to see first.

Donna, you need do _nothing_ for the local banks.  If the world was full of
nothing but money center banks yesterday then I can promise that plans would
be in the works immediately for a collection of local banks because

gasp

there is money to be made by being a small bank without the overhead of
multiple layers of management, etc.

>
>Evan, where you put your money says a lot about what your needs are at the 
>moment.  Think of it as a heirarchy of needs, and that heirarchy changes as 
>you have more money.  When you first have discretionary income or money, you 
>tend to put it into a local savings account.  The interest earned is dirt 
>but it's highly liquid and is insured (FDIC).  You don't have to worry about 
>losing it regardless of what happens to the economy, as long as it's less 
>than $100K (the FDIC only insures up to $100K; after that, you're on your 
>own.)  For the average person, their money "is just down the street."  It's 
>not, but most people think it is.

That, Donna, is the point.  Their money is not "just down the street".  It
is part of a global pool of rapidly moving resources.

>
>As you acquire more savings, you start to think of a CD because it's also 
>insured and earns a little higher interest.  It's not as liquid, but hey - - 
>you've got more money now & you can part with it for a few months or a year. 
>Besides, you know the local bank:  it's "just down the street and they've 
>been there a while."  As you progress with more savings, you probably buy a 
>house to shelter income and your savings (the little man's biggest 
>investment).
>
>You reach a point where you probably have all of the above because you're 
>doing it in stages & it protects you to have many layers.  Somewhere in 
>there you realized you could put savings into a "socially conscious fund" 
>because you could afford to lose it or to earn less interest.  Not that you 
>wanted to lose it, but you could afford to, if necessary.  You still need 
>the local bank, however, for your other needs.

Right.  So why motivate Evan to put his money in a local bank?  He and I
will do it, anyway, because it is damn convenient.

>
>You have probably already bought stock (either directly or through a mutual 
>fund) because that's where your greatest return is (the stock market, not 
>the mutual fund.)  But now you've gone NATIONAL, not local, because the 
>stock market is national.  Higher risk, higher reward.

Evan will act very rationally.  He will balance his personal taste for risk
and move some money into the stock market and some into a CD.

He doesn't need to be motivated to do this.  He will do this rationally.

>
>If you really become big time, you move to a money center bank, e.g., NY or 
>San Francisco, because your needs have changed.  Once you have money, 
>believe me, your needs have changed.  Corporations are the biggest users of 
>money center banks because they need to borrow large (repeat huge) amounts 
>but they also have large cash flows. They have needs that we don't have as 
>individuals.  They need a bank that can handle speed, volume, international 
>relationships, different types of transactions & sheer size of transaction. 
>Money center banks move millions & millions of dollars daily, whether 
>through wire transfer to other countries or through their local check 
>clearing houses.
>
>Here in Denver (or any large city), the local banks have their own clearing 
>houses to minimize using the Federal Reserve (which charges for clearning 
>checks).  If everyone had to go through money center banks for any volume of 
>money transfers, our system would be bogged down horribly.  In addition, 
>we'd be charged voluminous service fees, which we don't want.  Thus, you 
>could try to go multinational but
>
>    1) you don't need their services
>    2) you don't want to pay their fees
>    3) you don't want to maintain huge balances that earn no interest
>    4) they don't want you because they don't earn enough from you
>
>In answer to your question, for the vast majority of people, local banking 
>is better because it fits their needs.

This is absolutely true ... but I don't think it addressed the intent of
Evan's question.

>
>Donna
>
>Donna Plutschuck
>donna@xxxxxxxxxxxx
>Corporate Office Images, Ltd.
>355 S. Teller Street, Suite 200
>Lakewood, CO 80226
>303.235.0989   fax 303.235.0124

Ralph Shnelvar