7 ms·

Community-scale banks (aka credit unions) are a better idea for local-regional communities (aka cities and towns and agricultural regions) because their manager

Community-scale banks (aka credit unions) are a better idea for local-regional communities (aka cities and towns and agricultural regions) because their managers have to live with their clients. Take a community of 100,000 families, in an economic system where they're all collecting income and paying bills and so on. The idea behind a bank is that they hold the community's money securely while making their own money by providing loans at a greater interest rate than the interest rate they pay out to their depositors. Fundamentally, this means the bank is dependent on the fact that customers don't try to withdraw all their money at once (as the above dynamic means the bank is never able to meet this demand). FDIC guarantees by governments are intended to bolster this customer trust, as if everything goes sour the deposits (to a certain limit) are guaranteed. The important point is that the regional bank has a profit model based on giving successful loans to individuals and small businesses for things like houses, cars, business expansion, etc. The bank will of course want to know a fair amount about the people they are loaning to (drug addicts are not good bets, etc.) in order to ensure they get paid back. I hear people laughing in the background about the naivete of this picture in the modern American financial system. Since this post is already a bit long, go watch the movies "Margin Call" and "The Big Short" to get an idea of what's actually been going on.

Night_Thastus 4y ago
I've always used a credit union, and I love it! I can easily get a real person in front of me, there's not a million layers of bureaucracy, and most importantly - no bullshit fees. I don't constantly get my bank drained just for having an account in the first place.
- Scoundreller 4y ago
  To join mine, I bought a $5 share (as a minor) and continue to get a $5 dividend many many years later (but I gotta close the account to get the accrued dividends...). I gotta go to the AGM one day. I hear it's catered.
cperciva 4y ago
The model you describe is exactly why S&L happened. Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of reliably depositing paychecks. Banks don't work that way any more because it's a really bad way to run a bank.
- deleted 4y ago
  [deleted]
- photochemsyn 4y ago
  This is a rather skewed perspective that ignores the fact that if you have FDIC insurance for depositors then that can be gamed unless you have strict regulation of the banks: > "The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees." https://www.investopedia.com/terms/s/sl-crisis.asp https://www.investopedia.com/terms/s/sl-crisis.asp This is why a lot of people worry that Silicon Valley Bank, First Republic, etc. might be the tip of an iceberg. If they've all leveraged themselves on risky speculation bets in the hopes that they'll get bailouts if it all goes sour (even though depositors greatly exceeded FDIC insurance limits) then you could have a domino situation. Note also that it's a perfectly good way to run a bank as long as you don't get greedy and go for big risky bets, but the only way to ensure bank managers don't get the Las Vegas bug is to enforce the banking regulations in a fairly strict manner.
  - SamReidHughes 4y ago
    What? How do depositor bailouts affect bank managers' incentives?
    - jonhohle 4y ago
      If there is no risk, nothing is risky.
EGreg 4y ago
Credit Unions are better also because they are literally libertarian socialism. Imagine Uber with no shareholder class - as a cooperative, and so on. No one to extract rents from the two sides of the marketplace, the people themselves own the network. So are housing cooperatives. They have low rent because there is no landlord class. Look at the Mitchell-Lama program in NYC, 30 years later they the most desirable and awesome apartments for the price, all around the city. Meanwhile next door the capitalist landlord-owned buildings are 3x as much for worse amenities. https://en.wikipedia.org/wiki/Mitchell%E2%80%93Lama_Housing_Program https://en.wikipedia.org/wiki/Mitchell%E2%80%93Lama_Housing_... The democratically-run city tries to fix this with rent control, but it's only some housing, and just a few mins ago we learned this: https://www.nydailynews.com/new-york/ny-rgb-preliminary-vote-protests-chi-osse-eric-adams-tiffany-caban-20230503-22sf2gj6xjacdcgg35qwoezmhi-story.html https://www.nydailynews.com/new-york/ny-rgb-preliminary-vote... Plus the government is notoriously bad at getting even the simplest stuff done: https://therealdeal.com/magazine/national-july-2022/that-empty-feeling/ https://therealdeal.com/magazine/national-july-2022/that-emp... So yeah, I'm a libertarian socialist. People in the US hear socialism and they think of a big, oppressive government, but actually government is just as much if not more on the side of the capitalist, the industrialist... bailing out large banks and injecting trillions into corporate equity to prop up markets. In the 19th century they actually violently put down strikers, evicted people, operated debtor's prisons etc. which is why most libertarians back then were socialist. It was cool. Today that lefty libertarian stuff is mostly in Europe. https://en.wikipedia.org/wiki/The_Soul_of_Man_Under_Socialism https://en.wikipedia.org/wiki/The_Soul_of_Man_Under_Socialis... There are very few famous lefty libertarians today, people like George Carlin and Russel Brand maybe.
- JPws_Prntr_Fngr 4y ago
  That article at therealdeal has me pretty stunned. The headline story is that landlords are keeping rent controlled units vacant rather than renovating them which would be unprofitable, and daring the toothless regulators to do something about it. Ok, makes sense. Then as a side note, the article mentions that they’re also deferring maintenance on whole buildings: roofs, boilers, cameras, etc. The fact that these landlords are incentivized not just to let a few units turn into roach hotels, but to let their whole buildings crumble, without the remaining tenants leaving to a better building - that’s a fundamentally broken market. Way beyond a few rent controlled units.
tadfisher 4y ago
Credit unions aren't insured by the FDIC, they have NCUA insurance.
candiddevmike 4y ago
Why are drug addicts not good bets? Coffee drinkers seem pretty successful?
- judge2020 4y ago
  Sure, "Coffee is a drug" just as much as Caffeine and sugar are. OP likely meant that those who abuse scheduled drugs (outside of weed) are more likely to develop a habit of putting off work to feed that addiction, or to be fired for misconduct in connection with their use, resulting in more late payments and eventual repossessions/foreclosures on loans. It's all in terms of managing risk, but I'm sure chronic alcoholics are just as risky, if not more risky, as meth heads, since they blend in and have a good credit score but are more likely to lose their job for being intoxicated at work or go to jail for something like drunk driving.
PheeThav1zae7fi 4y ago
[dead]
kortilla 4y ago
This doesn’t work. The very failures we are seeing today are why this doesn’t work. Why would someone leave their money in the regional bank offering 0.3% that all of their issued loans average barely above when people can take it to a bank offering 3% or get CDs offering that? Community scale banks aren’t a solution for this.
- zamnos 4y ago
  When Chase, BofA, and Citigroup are all offering approximately 0.0000% APY on their CDs, and it's credit unions that are offering 3+% (you should be shooting for at least 4% right now), it's not clear that big banks are actually better than a smaller, community-focused bank or credit union. https://online.citi.com/US/ag/current-interest-rates/cd https://online.citi.com/US/ag/current-interest-rates/cd https://www.bankofamerica.com/deposits/bank-cds/cd-accounts/ https://www.bankofamerica.com/deposits/bank-cds/cd-accounts/ https://www.chase.com/personal/savings/bank-cd https://www.chase.com/personal/savings/bank-cd I double checked, and it turns out they all have a couple of products offering closer to 4.5% APY, but the tables on those linked pages still have far too many numbers like 0.05% APY on them to be taken seriously.
WeylandYutani 4y ago
This would make the bank extremely vulnerable if the community is hit by a recession. You need to diversify the risks not bet it all on a single hand.

Night_Thastus 4y ago

I've always used a credit union, and I love it! I can easily get a real person in front of me, there's not a million layers of bureaucracy, and most importantly - no bullshit fees. I don't constantly get my bank drained just for having an account in the first place.

Scoundreller 4y ago
To join mine, I bought a $5 share (as a minor) and continue to get a $5 dividend many many years later (but I gotta close the account to get the accrued dividends...). I gotta go to the AGM one day. I hear it's catered.

cperciva 4y ago

The model you describe is exactly why S&L happened. Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of reliably depositing paychecks. Banks don't work that way any more because it's a really bad way to run a bank.

deleted 4y ago
[deleted]
photochemsyn 4y ago
This is a rather skewed perspective that ignores the fact that if you have FDIC insurance for depositors then that can be gamed unless you have strict regulation of the banks: > "The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees." https://www.investopedia.com/terms/s/sl-crisis.asp https://www.investopedia.com/terms/s/sl-crisis.asp This is why a lot of people worry that Silicon Valley Bank, First Republic, etc. might be the tip of an iceberg. If they've all leveraged themselves on risky speculation bets in the hopes that they'll get bailouts if it all goes sour (even though depositors greatly exceeded FDIC insurance limits) then you could have a domino situation. Note also that it's a perfectly good way to run a bank as long as you don't get greedy and go for big risky bets, but the only way to ensure bank managers don't get the Las Vegas bug is to enforce the banking regulations in a fairly strict manner.
- SamReidHughes 4y ago
  What? How do depositor bailouts affect bank managers' incentives?
  - jonhohle 4y ago
    If there is no risk, nothing is risky.

EGreg 4y ago

Credit Unions are better also because they are literally libertarian socialism. Imagine Uber with no shareholder class - as a cooperative, and so on. No one to extract rents from the two sides of the marketplace, the people themselves own the network. So are housing cooperatives. They have low rent because there is no landlord class. Look at the Mitchell-Lama program in NYC, 30 years later they the most desirable and awesome apartments for the price, all around the city. Meanwhile next door the capitalist landlord-owned buildings are 3x as much for worse amenities. https://en.wikipedia.org/wiki/Mitchell%E2%80%93Lama_Housing_Program https://en.wikipedia.org/wiki/Mitchell%E2%80%93Lama_Housing_... The democratically-run city tries to fix this with rent control, but it's only some housing, and just a few mins ago we learned this: https://www.nydailynews.com/new-york/ny-rgb-preliminary-vote-protests-chi-osse-eric-adams-tiffany-caban-20230503-22sf2gj6xjacdcgg35qwoezmhi-story.html https://www.nydailynews.com/new-york/ny-rgb-preliminary-vote... Plus the government is notoriously bad at getting even the simplest stuff done: https://therealdeal.com/magazine/national-july-2022/that-empty-feeling/ https://therealdeal.com/magazine/national-july-2022/that-emp... So yeah, I'm a libertarian socialist. People in the US hear socialism and they think of a big, oppressive government, but actually government is just as much if not more on the side of the capitalist, the industrialist... bailing out large banks and injecting trillions into corporate equity to prop up markets. In the 19th century they actually violently put down strikers, evicted people, operated debtor's prisons etc. which is why most libertarians back then were socialist. It was cool. Today that lefty libertarian stuff is mostly in Europe. https://en.wikipedia.org/wiki/The_Soul_of_Man_Under_Socialism https://en.wikipedia.org/wiki/The_Soul_of_Man_Under_Socialis... There are very few famous lefty libertarians today, people like George Carlin and Russel Brand maybe.

JPws_Prntr_Fngr 4y ago
That article at therealdeal has me pretty stunned. The headline story is that landlords are keeping rent controlled units vacant rather than renovating them which would be unprofitable, and daring the toothless regulators to do something about it. Ok, makes sense. Then as a side note, the article mentions that they’re also deferring maintenance on whole buildings: roofs, boilers, cameras, etc. The fact that these landlords are incentivized not just to let a few units turn into roach hotels, but to let their whole buildings crumble, without the remaining tenants leaving to a better building - that’s a fundamentally broken market. Way beyond a few rent controlled units.

tadfisher 4y ago

Credit unions aren't insured by the FDIC, they have NCUA insurance.

candiddevmike 4y ago

Why are drug addicts not good bets? Coffee drinkers seem pretty successful?

judge2020 4y ago
Sure, "Coffee is a drug" just as much as Caffeine and sugar are. OP likely meant that those who abuse scheduled drugs (outside of weed) are more likely to develop a habit of putting off work to feed that addiction, or to be fired for misconduct in connection with their use, resulting in more late payments and eventual repossessions/foreclosures on loans. It's all in terms of managing risk, but I'm sure chronic alcoholics are just as risky, if not more risky, as meth heads, since they blend in and have a good credit score but are more likely to lose their job for being intoxicated at work or go to jail for something like drunk driving.

PheeThav1zae7fi 4y ago

[dead]

kortilla 4y ago

This doesn’t work. The very failures we are seeing today are why this doesn’t work. Why would someone leave their money in the regional bank offering 0.3% that all of their issued loans average barely above when people can take it to a bank offering 3% or get CDs offering that? Community scale banks aren’t a solution for this.

zamnos 4y ago
When Chase, BofA, and Citigroup are all offering approximately 0.0000% APY on their CDs, and it's credit unions that are offering 3+% (you should be shooting for at least 4% right now), it's not clear that big banks are actually better than a smaller, community-focused bank or credit union. https://online.citi.com/US/ag/current-interest-rates/cd https://online.citi.com/US/ag/current-interest-rates/cd https://www.bankofamerica.com/deposits/bank-cds/cd-accounts/ https://www.bankofamerica.com/deposits/bank-cds/cd-accounts/ https://www.chase.com/personal/savings/bank-cd https://www.chase.com/personal/savings/bank-cd I double checked, and it turns out they all have a couple of products offering closer to 4.5% APY, but the tables on those linked pages still have far too many numbers like 0.05% APY on them to be taken seriously.

WeylandYutani 4y ago

This would make the bank extremely vulnerable if the community is hit by a recession. You need to diversify the risks not bet it all on a single hand.