Imagine that all of your personal financial needs were deemed undesirable by your financial institution. Imagine that getting a loan for a car, home or student loan was not something that the senior management of your financial institution was really interested in providing to you. What if they saw those things as drains on the balance sheet? Sounds farfetched, right? In this economy with people struggling, who would not want to support lending that moved the auto industry forward or helped people get into homes with rates that have been some of the lowest in many people’s adult lives? Yet, this farfetched approach is exactly what one of the largest “Big Banks” has done. So what right? What does that have to do with us in the credit union universe?
Nothing, except that I find it odd that some of the world’s most complex financial institutions have grown so large that Congress had to reform financial service regulation to contain a provision on how to break these giants apart in a way that does not pull down the world economy. Now while those laws are still drying on the books, other bank lobbyist have proposed that large credit unions be forced into a mutual savings bank charter. So let’s break apart the logic on this.
- The Big Bank has grown so big it wants to sell off distraction divisions that provide financial services for auto lending, mortgage lending and student lending.
- Big Banks have become so large that Congress had to create a provision for “Too Big to Fail” and make that a law to protect the world economy.
- Banks want larger credit unions to convert and become larger banks.
….and the reason for this stunning conclusion on the part of the banks is what exactly?
In a world of Big Banks deemed “Too Big to Fail” we need to have more local financial intuitions under the banner of “Too Important to Disappear.” Don’t be fooled by all the double talk being presented by Big Bank lobbyist. The bottom line for every person in the local community is that members and non-members benefit by having local credit unions in the community.
It is a basic principle that can be seen on the corner of most intersections. Gas Station A is selling gas for $2.50 a gallon while across the street Gas Station B wants to sell the gas for $3.50 a gallon. What would stop them from selling at $3.50? Gas Station A. Local competition is always a plus for consumers. The same principles hold true in financial services as credit union competition helps consumers by keeping bank rates and fees lower.
For example, if your local credit union is charging a fixed rate of 10% on a credit card then all other lenders in the community have to compete with that rate. I don’t want to imagine how expensive Big Banks would make credit cards (anyone with a Big Bank paying 20-30% on their card?) if they didn’t have to compete with credit union rates.
