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> To understand why banks are scaling back and why it causes American Samoa such pain, imagine a basic small-town bank. It takes in paychecks and other deposits

> To understand why banks are scaling back and why it causes American Samoa such pain, imagine a basic small-town bank. It takes in paychecks and other deposits from locals and uses them as reserves when lending to their neighbors, who then invest in property and businesses. > That model breaks down when banks span states or countries. The big banks with tiny branches in American Samoa are happy to take deposits from locals, but when it comes to lending that money back out, it makes cold, actuarial sense to focus on bigger, safer clients elsewhere. This is another pretty good general argument against bank consolidation. In addition to increasing economic fragility during crises, large banks also neglect real communities that need their services during the good times.

dredmorbius 8y ago
Risk arbitrage.
- Retric 8y ago
  Banks have an odd relationship with risk. It's vastly safer to have a large number of banks than to have a much smaller number of banks. The problem is downsides vastly outweigh upside so you increase risk when you join two smaller but reasonably stable entities.
  - dredmorbius 8y ago
    Right, though large banks have other affordances: more leverage from both information systems and relationships, as well as control over assets such as real estate and loans access. What I was pointing out was the arbitrage of collecting cash locally (low risk) whilst seeking low-risk lending opportunities elsewhere. This actually extracts cash from the local community without providing offsetting borrowing opportunities. The community is net worse off. Rational from the bank's perspective.
    - clairity 8y ago
      arbitrage has a more precise meaning than just "you can make money by buying here and then selling there" (otherwise any commerce could be called arbitrage). the defining characteristic of arbitrage is that it is risk-free. taking deposits and loaning out money is not risk-free (because someone might not pay you back in full), so it's not arbitrage. using dollars to buy yen cheaply and then selling it back for more dollars in the same transaction is an example of arbitrage.
    - pishpash 8y ago
      That doesn't make sense. Both deposit and borrowing opportunities exist at some price. Low risk deposits can be sold at a low price and high risk loans can be bought at a high price. If anything, what a bank naturally would want to do is to sell low risk local deposits, taking the cash to buy high risk loans elsewhere in order to collect the risk premium. The same happens in reverse. There is no inherent reason for money to move net-net, unless there is unequal demand for deposits and borrowing. For a place like Samoa, they probably need more borrowing, so banks wouldn't be extracting any cash, but rather bringing it in.
dnomad 8y ago
Bank consolidation is inevitable. Large banks are like nuclear weapons. Every nation absolutely needs them or they risk foreign banks and investors rushing in and capitalizing+colonizing the entire country. So if you don't have large banks you're absolutely at the mercy of those who do (when it comes time to raise capital). But once you have large banks it becomes down right unprofitable to invest in small enterprises. As they say, no tier 1 bank is interested in funding an additional lemonade stand. Go big or go home. There's a feedback loop here that Marx understood quite clearly: capital becomes ever more centralized, ever more efficient, ever more demanding of bigger returns and more capital to invest. This process can be slowed but it cannot be stopped. It is also essential to global trade and our modern way of life. The end result is the undercapitalization of virtually everybody but a select wealthy elite. But the internet can fix this. It allows for the creation of markets and coordination very, very cheaply. Crowd funding, p2p lending, Youtube, Patreon, open source software, and yes, cryptocurrencies -- these are the key tools of resistance that will allow the little fish to carve out some measure of autonomy. This is the point. Trillions are locked away in the global mega-banks and the bank-likes. Governments across the globe embrace neoliberal policies and actively disinvest in their own people, cutting services and raising fees. Inequality is rising faster and faster, everywhere. What else is there to do? If the proletariat cannot access the private money locked away in the banks and the public money has mysteriously all disappeared then they have no choice but to literally make their own money and seize the means of production. It's this project, the recapitalization of the proletariat, that is the great challenge of the 21st century.
- Lionsion 8y ago
  > Bank consolidation is inevitable. Large banks are like nuclear weapons. Every nation absolutely needs them or they risk foreign banks and investors rushing in and capitalizing+colonizing the entire country. I don't think that makes sense. If you don't allow massively consolidated domestic banks to operate in your country, why would you allow massively consolidated foreign banks to do so instead and "colonize" you? > But the internet can fix this. It allows for the creation of markets and coordination very, very cheaply. Crowd funding, p2p lending, Youtube, Patreon, open source software, and yes, cryptocurrencies -- these are the key tools of resistance that will allow the little fish to carve out some measure of autonomy. Personally, I'm moving on from this kind of techno-optimism. I don't think those things can fill these void left by a lack of community banks. Those have their attention focused on their local communities, but your techno-institutions focus their attention on what's attention-grabbing globally. While the latter may be different from what the big banks focus on, it doesn't fix the problems that community banks solve.
jessriedel 8y ago
Suppose there was a bank local to American Samoa and another international bank with a branch in American Samoa, and the latter could offer higher interest rates because it saw fewer average defaults when lending money. Are you saying we should prohibit American Samoans from putting their money in the international bank and getting higher returns, effectively forcing locals to lend to other locals?
- Lionsion 8y ago
  > Are you saying we should prohibit American Samoans from putting their money in the international bank and getting higher returns, effectively forcing locals to lend to other locals? If it improves the local economic conditions by keeping money flowing in the local economy, then such a ban seems like a reasonable trade-off for the common good. Being a greedy individualist, by focusing on chasing after marginally higher savings account interests rates, is likely going to be self-defeating in this case. Your dozens of dollars in extra interest payments are unlikely to compensate you for the other economic hardships you'll encounter because there's no local bank that will bother to make loans to your community.
  - SamReidHughes 8y ago
    It worsens local economic conditions by directing local resources to unprofitable forms of work.
    - mannykannot 8y ago
      I doubt the consequences are worse than those of not having a functional banking system.
    - frgtpsswrdlame 8y ago
      But it doesn't direct local resource to unprofitable forms of work, it directs local resources to less profitable local forms of work rather than more profitable foreign forms of work. That seems like a perfectly reasonable trade-off for a community to make.
    - 8y ago
xienze 8y ago
> large banks also neglect real communities that need their services during the good times. Sure, but isn’t that problem solved by credit unions?
- tathougies 8y ago
  To be honest, almost all banking services are solved by credit unions. This begs the question of why we even need for-profit international banks.
  - patio11 8y ago
    They’re really helpful if you want to live in a world with for-profit international companies. (You want to live in a world with for-profit international companies.)
    - frgtpsswrdlame 8y ago
      Total Edit: Banks don't have to be international to support international companies.
  - 1123581321 8y ago
    Ive worked at a credit union. I’m supportive of the idea. However, credit unions aren’t efficient or even capable of providing all banking services people want. They’re especially poor at banking for people who travel internationally, and at providing business banking. Also, most credit unions either use federal (national) credit unions and large banks for services. We bought our cash from JP Morgan, sold our mortgages to US Bank and kept reserves with a federal CU. Without these services, expenses would have been higher or services would have been reduced.
    - Consultant32452 8y ago
      Interestingly, I had the opposite experience. In my area the credit unions have fees equal to our greater than the big banks for personal accounts. However, one local credit union had the best stats for my small business account. It's worth noting I did not travel internationally or do any international business. Also, their ATM was the old green screen style as late as 2015 and did not accept deposits.
deleted 8y ago
[deleted]
nicoburns 8y ago
I'm increasingly thinking that this is a pretty good argument against consolidation in any industry (to be weighed against the benefits of economies of scale in the particular case).
savanaly 8y ago
If we want to give charity to a class of people via subsidizing credit to them, we should be explicit about it rather than putting moral pressure on banks to make sub-optimal loans alongside honestly offered loans. The idea that the bank is obligated to balance the scales of lending and borrowing seems odd to me as well. I keep a bank account for myself personally of course, and if some day I needed to take a big loan out to start a business I wouldn't consider my decades of having a checking account with the bank as obligating them to extend me the loan regardless of the credit risk they think I am. I voluntarily signed up for a bank account because it's good for me, and if there's nothing in the contract about them having to make me a loan in the future I shouldn't expect one and neither should they.
- Lionsion 8y ago
  > I voluntarily signed up for a bank account because it's good for me, and if there's nothing in the contract about them having to make me a loan in the future I shouldn't expect one and neither should they. That's libertarian dogma that elides the whole world outside of its narrow logic. Corporations are ultimately meant to be agents that further the public good. They're not vehicles for the unrestrained pursuit of private profit to the exclusion of all other concerns. If natural economic incentives are not enough to motivate them to act in the interests of the public, then its the job of government and its regulations to compel a solution. To wit: if bank consolidation causes public goods such as community lending to be neglected, then government should forbid bank mergers and break up large banks until it no longer is.
  - 49531 8y ago
    > Corporations are ultimately meant to be agents that further the public good. Corporations have rarely (if ever) been meant to further public good. They have almost always been for "unrestrained pursuit of profit to the exclusion of all other concerns". I agree that as soon as they start acting outside public interest they should be reigned in by regulators, the problem is that regulators tend to turn a blind eye when a corporation can pay them to.
    - 8y ago
dv_dt 8y ago
It really calls into question the efficiency of large banks, when by their structure, they have constructed inherent barriers to understanding what loans are a risk in communities. It becomes a self fulfilling prophecy that small loans in smaller communities become higher risk...
deleted 8y ago
[deleted]

dredmorbius 8y ago

Risk arbitrage.

Retric 8y ago
Banks have an odd relationship with risk. It's vastly safer to have a large number of banks than to have a much smaller number of banks. The problem is downsides vastly outweigh upside so you increase risk when you join two smaller but reasonably stable entities.
- dredmorbius 8y ago
  Right, though large banks have other affordances: more leverage from both information systems and relationships, as well as control over assets such as real estate and loans access. What I was pointing out was the arbitrage of collecting cash locally (low risk) whilst seeking low-risk lending opportunities elsewhere. This actually extracts cash from the local community without providing offsetting borrowing opportunities. The community is net worse off. Rational from the bank's perspective.
  - clairity 8y ago
    arbitrage has a more precise meaning than just "you can make money by buying here and then selling there" (otherwise any commerce could be called arbitrage). the defining characteristic of arbitrage is that it is risk-free. taking deposits and loaning out money is not risk-free (because someone might not pay you back in full), so it's not arbitrage. using dollars to buy yen cheaply and then selling it back for more dollars in the same transaction is an example of arbitrage.
  - pishpash 8y ago
    That doesn't make sense. Both deposit and borrowing opportunities exist at some price. Low risk deposits can be sold at a low price and high risk loans can be bought at a high price. If anything, what a bank naturally would want to do is to sell low risk local deposits, taking the cash to buy high risk loans elsewhere in order to collect the risk premium. The same happens in reverse. There is no inherent reason for money to move net-net, unless there is unequal demand for deposits and borrowing. For a place like Samoa, they probably need more borrowing, so banks wouldn't be extracting any cash, but rather bringing it in.

dnomad 8y ago

Bank consolidation is inevitable. Large banks are like nuclear weapons. Every nation absolutely needs them or they risk foreign banks and investors rushing in and capitalizing+colonizing the entire country. So if you don't have large banks you're absolutely at the mercy of those who do (when it comes time to raise capital). But once you have large banks it becomes down right unprofitable to invest in small enterprises. As they say, no tier 1 bank is interested in funding an additional lemonade stand. Go big or go home. There's a feedback loop here that Marx understood quite clearly: capital becomes ever more centralized, ever more efficient, ever more demanding of bigger returns and more capital to invest. This process can be slowed but it cannot be stopped. It is also essential to global trade and our modern way of life. The end result is the undercapitalization of virtually everybody but a select wealthy elite. But the internet can fix this. It allows for the creation of markets and coordination very, very cheaply. Crowd funding, p2p lending, Youtube, Patreon, open source software, and yes, cryptocurrencies -- these are the key tools of resistance that will allow the little fish to carve out some measure of autonomy. This is the point. Trillions are locked away in the global mega-banks and the bank-likes. Governments across the globe embrace neoliberal policies and actively disinvest in their own people, cutting services and raising fees. Inequality is rising faster and faster, everywhere. What else is there to do? If the proletariat cannot access the private money locked away in the banks and the public money has mysteriously all disappeared then they have no choice but to literally make their own money and seize the means of production. It's this project, the recapitalization of the proletariat, that is the great challenge of the 21st century.

Lionsion 8y ago
> Bank consolidation is inevitable. Large banks are like nuclear weapons. Every nation absolutely needs them or they risk foreign banks and investors rushing in and capitalizing+colonizing the entire country. I don't think that makes sense. If you don't allow massively consolidated domestic banks to operate in your country, why would you allow massively consolidated foreign banks to do so instead and "colonize" you? > But the internet can fix this. It allows for the creation of markets and coordination very, very cheaply. Crowd funding, p2p lending, Youtube, Patreon, open source software, and yes, cryptocurrencies -- these are the key tools of resistance that will allow the little fish to carve out some measure of autonomy. Personally, I'm moving on from this kind of techno-optimism. I don't think those things can fill these void left by a lack of community banks. Those have their attention focused on their local communities, but your techno-institutions focus their attention on what's attention-grabbing globally. While the latter may be different from what the big banks focus on, it doesn't fix the problems that community banks solve.

jessriedel 8y ago

Suppose there was a bank local to American Samoa and another international bank with a branch in American Samoa, and the latter could offer higher interest rates because it saw fewer average defaults when lending money. Are you saying we should prohibit American Samoans from putting their money in the international bank and getting higher returns, effectively forcing locals to lend to other locals?

Lionsion 8y ago
> Are you saying we should prohibit American Samoans from putting their money in the international bank and getting higher returns, effectively forcing locals to lend to other locals? If it improves the local economic conditions by keeping money flowing in the local economy, then such a ban seems like a reasonable trade-off for the common good. Being a greedy individualist, by focusing on chasing after marginally higher savings account interests rates, is likely going to be self-defeating in this case. Your dozens of dollars in extra interest payments are unlikely to compensate you for the other economic hardships you'll encounter because there's no local bank that will bother to make loans to your community.
- SamReidHughes 8y ago
  It worsens local economic conditions by directing local resources to unprofitable forms of work.
  - mannykannot 8y ago
    I doubt the consequences are worse than those of not having a functional banking system.
  - frgtpsswrdlame 8y ago
    But it doesn't direct local resource to unprofitable forms of work, it directs local resources to less profitable local forms of work rather than more profitable foreign forms of work. That seems like a perfectly reasonable trade-off for a community to make.
  - 8y ago

xienze 8y ago

> large banks also neglect real communities that need their services during the good times. Sure, but isn’t that problem solved by credit unions?

tathougies 8y ago
To be honest, almost all banking services are solved by credit unions. This begs the question of why we even need for-profit international banks.
- patio11 8y ago
  They’re really helpful if you want to live in a world with for-profit international companies. (You want to live in a world with for-profit international companies.)
  - frgtpsswrdlame 8y ago
    Total Edit: Banks don't have to be international to support international companies.
- 1123581321 8y ago
  Ive worked at a credit union. I’m supportive of the idea. However, credit unions aren’t efficient or even capable of providing all banking services people want. They’re especially poor at banking for people who travel internationally, and at providing business banking. Also, most credit unions either use federal (national) credit unions and large banks for services. We bought our cash from JP Morgan, sold our mortgages to US Bank and kept reserves with a federal CU. Without these services, expenses would have been higher or services would have been reduced.
  - Consultant32452 8y ago
    Interestingly, I had the opposite experience. In my area the credit unions have fees equal to our greater than the big banks for personal accounts. However, one local credit union had the best stats for my small business account. It's worth noting I did not travel internationally or do any international business. Also, their ATM was the old green screen style as late as 2015 and did not accept deposits.

deleted 8y ago

[deleted]

nicoburns 8y ago

I'm increasingly thinking that this is a pretty good argument against consolidation in any industry (to be weighed against the benefits of economies of scale in the particular case).

savanaly 8y ago

If we want to give charity to a class of people via subsidizing credit to them, we should be explicit about it rather than putting moral pressure on banks to make sub-optimal loans alongside honestly offered loans. The idea that the bank is obligated to balance the scales of lending and borrowing seems odd to me as well. I keep a bank account for myself personally of course, and if some day I needed to take a big loan out to start a business I wouldn't consider my decades of having a checking account with the bank as obligating them to extend me the loan regardless of the credit risk they think I am. I voluntarily signed up for a bank account because it's good for me, and if there's nothing in the contract about them having to make me a loan in the future I shouldn't expect one and neither should they.

Lionsion 8y ago
> I voluntarily signed up for a bank account because it's good for me, and if there's nothing in the contract about them having to make me a loan in the future I shouldn't expect one and neither should they. That's libertarian dogma that elides the whole world outside of its narrow logic. Corporations are ultimately meant to be agents that further the public good. They're not vehicles for the unrestrained pursuit of private profit to the exclusion of all other concerns. If natural economic incentives are not enough to motivate them to act in the interests of the public, then its the job of government and its regulations to compel a solution. To wit: if bank consolidation causes public goods such as community lending to be neglected, then government should forbid bank mergers and break up large banks until it no longer is.
- 49531 8y ago
  > Corporations are ultimately meant to be agents that further the public good. Corporations have rarely (if ever) been meant to further public good. They have almost always been for "unrestrained pursuit of profit to the exclusion of all other concerns". I agree that as soon as they start acting outside public interest they should be reigned in by regulators, the problem is that regulators tend to turn a blind eye when a corporation can pay them to.
  - 8y ago

dv_dt 8y ago

It really calls into question the efficiency of large banks, when by their structure, they have constructed inherent barriers to understanding what loans are a risk in communities. It becomes a self fulfilling prophecy that small loans in smaller communities become higher risk...

deleted 8y ago

[deleted]