Will 'Bank Transfer Day' Hurt Big Banks?

Includes: BAC, C, JPM, USB, WFC
by: Avery Goodman

Although all the headlines are going to the protest signage of the more visible "Occupy Wall Street" movement, a quieter, and perhaps far more effective protest is slowly taking form. It is known as "Bank Transfer Day", and is spearheaded by a young woman named Kristen Christian. On her Facebook page, she helps people with the logistics necessary to transfer their money out of the for-profit shareholder owned big banks, and into non-profit member owned credit unions.

Kristen says she is not a credit union employee and receives no public or private donations. She describes herself as simply "a private citizen and small business owner with no affiliations to Anonymous or Occupy Wall Street." She is one of the many who object to imposition of sharply higher fees by her previous bank. The higher fees were a big bank response to the passage of the Durbin Amendment to the Dodd-Frank Act. The Federal Reserve semi-autonomous "Consumer Protection Division" issued a rule that limited debit card interchange fees to a maximum of 21¢ per transaction.

Many of the bigger banks responded by trying to create revenue elsewhere. This included reducing services and raising other fees. The cost of checking, check cards, etc. at many have been rising even as interest rates have fallen In one highly publicized example, Bank of America (NYSE:BAC) created a $5 per month debit card fee that spurred a huge amount of controversy. But more practical minded people who observed the controversy were also asking themselves "why?" Why make such a fuss over the fact that Bank of America, JP Morgan Chase (NYSE:JPM), and/or Wells Fargo (NYSE:WFC) are raising fees? If you don't like the higher fees, there are hundreds of other banks you can use.

The big banks say that they need more revenue. Smaller banks need revenue also. They are also for-profit financial institutions, but they have been less aggressive in hiking fees. Credit unions are generally non-profit membership organizations that provide almost all the same services as banks from the standpoint of the retail customers and, if allowed, of small businesses as well. Most credit unions have not changed their fees at all. They also offer significantly higher rates for both liquid and time deposits.

Federal and most state chartered credit unions are insured by NCUA. The rules of NCUA insurance are mostly identical with those of FDIC insurance and insure up to $250,000 per account. Both insurance schemes have the backing of the full faith and credit of the United States of America, and their rules are almost identical. Aside from much lower fees and higher deposit interest rates, no federally insured credit union has used a government sponsored deposit insurance plan to offload private profits from derivatives.

Bank Transfer Day is November 5, 2011. Although the "Bank Transfer Day" campaign does not cooperate or coordinate with "Occupy Wall Street" or the "Anonymous" hackers group, in early October, those two groups decided to add their support to Kristen Christian's already-existing idea. They have piggy-backed their own "Operation Cash-Back" day on her idea, and, apparently, plan to have protesters loudly calling for people to close accounts with big banks, and open new ones at credit unions on the same day.

Kristen Christian has some tools on her website that can help you locate a credit union near your home that is suitable for your needs. But, how much traction is Bank Transfer Day really going to achieve, even when combined with the piggybacking by others? Will it be enough to significantly affect the profits of big banks, like BAC, JPM, C, WFC, etc. or their stock prices?

In answering the question of whether or not a mass transfer of assets from the big banks to credit unions would cause a new Great Depression, Kristen gives us the answer to those questions as well by stating:

Even with 100,000 supporters nationwide, the major banks would stand to lose roughly $1B. For perspective, JP Morgan Chase alone received nearly twice that as a tax refund in 2010.

Even if hundreds of billions of dollars left the big internationally oriented Wall Street banks, it would have exactly the opposite effect with respect to inducing a depression. Depositor money would stop being shifted out of the USA for use in lending overseas, and FDIC insured deposits could no longer be used to underwrite trillions of dollars worth of risky derivatives at the ultimate risk of US taxpayers. Unlike money kept in international institutions, all the money kept in smaller banks and credit unions is loaned out in communities inside the USA. It would be used for prosaic things like starting new businesses, buying new cars, etc.

Smart customers, who don't like ever-increasing fees for ever-decreasing services won't be protesting in the streets. Nor will they be demanding that Congress stop big banks from raising ATM charges or imposing a $5 per month debit card fees. They will simply be voting with their feet, moving money to more "friendly" environments as is being recommended by Kristen Christian. They will be moving their money to smaller banks, and online institutions, like Charles Schwab Bank, which charge much less, pay much more interest, and are more customer friendly.

It will be interesting to see what happens on November 5th, 2011. It is not likely to cause much of a stir. Far more important will be the actions of millions of bank customers who never once heard the name "Bank Transfer Day". When they leave the party, on their own both on, before and after that date, I wouldn't want to be a big bank shareholder.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.