Jeff Duntemann (jeff_duntemann) wrote,
Jeff Duntemann

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Big Banks and Small Customers

I haven't seen this come up in recent discussions, but it's something more people need to understand: You do not hurt large banks by withdrawing your own (small) accounts. Really. On the contrary, you're doing them a huge favor, and making them more efficient and more profitable.

Even small banks make no money on consumer checking accounts. Big banks run a sigificant loss on such accounts (from what I've read, on the order of $300-$400 per account per year) and would prefer not to have them at all. Banks and bank-like institutions like credit unions and savings-and-loans make virtually all their money on loans. Checking accounts especially are loss-leaders to get consumers in the door so that bank reps can sell loans and (to more affluent customers) investments.

Large banks have angered consumers by attempting to raise fees to cover the service costs of checking accounts and small savings accounts. (The recent ATM fee debacle is a good example.) It's become stylish to protest by closing accounts and going to smaller institutions, particularly credit unions. How this hurts the big banks I can't imagine. Small accounts provide a certainly amount of liquidity but at a high cost in customer service manpower, printing, and general overhead. The best outcome for big banks would be to drop all customers with less than about $10,000 in cash in their accounts. They'd be flayed alive in the media if they just canceled and refunded such accounts. Now these costly customers are punishing big banks by canceling the very accounts the banks would love to cancel themselves.

I guess it makes about as much sense as anything in politics these days.

UPDATE: The article that triggered my line of thought here is paywalled and I couldn't cite it, but I've since discovered this discussion with the Motley Fool guy in the Christian Science Monitor. (Thanks to gmcdavid over on LiveJournal for the link.)

There's the additional issue that if everybody pulled small accounts out of the big banks, the big banks would feel it. However, if only a relative few participate in Bank Transfer Day, the banks benefit. The effect is not linear, and cooks down to the difference between eating their lunch and washing their dishes.

Tags: politics

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