Offering frequent news and analysis from the majestic Evergreen State and beyond, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Friday, March 27, 2009

No credit? No problem... if you're a bank director or a chief executive officer

President Barack Obama has said on a number of ocassions that his administration believes that getting credit flowing to small businesses again is vital to jumpstarting our economy. It turns out that the nation's largest banks, which are holding on to their capital pretty tightly, are eager to lend... to their own executives and directors. A recent article from McClatchy revealed that banks hold some $41 billion in insider loans to their own leaders.
At Charlotte-based Bank of America, those loans more than doubled last year, to $624.2 million — the biggest dollar jump in the country. The largest of them likely went to three directors or their companies. The surge came during the third quarter as credit markets froze, the government prepared to infuse banks with billions in tax dollars and the board approved the purchase of troubled Merrill Lynch.

Bank of America ranked fourth on the list of biggest insider lenders. At the top was JPMorgan of New York, which held $1.48 billion in insider loans, mostly by directors or their companies.

At No. 2, Charlotte-based Wachovia, which was sold to Wells Fargo of San Francisco at the end of 2008, finished the year with $747 million in insider loans. All of the loans were held by the bank's directors or their companies, with just five holding the largest.
What's to be done about the practice of insider lending?

It may not be illegal, but it certainly seems unfair that banks are lending to their own while many small businesses are struggling to get credit.

Many of the big banks mentioned in McClatchy's article have been recipients of Troubled Asset Relief Program (TARP) money. The Obama administration could impose new rules on banks to require banks to lend fairly.

Alternatively, we could listen to the libertarians, abandon the bailout approach, and let the banks compete. The ones that fail would probably take people and businesses down with them, but that's just something we'd have to live with.

What about individual consumers? What can we do if we're tired of waiting for our government to force these banks to clean up their act? Is there any way we can vote with our dollars for change (no pun intended)?

It turns out there is. Democratic financial institutions are out there - and they're happy to welcome new members. They're commonly known as credit unions.

At a credit union, all of the depositors are also shareholders. (In credit union parlance, they're member-owners.)

Credit unions don't exist to make money. The purpose of a credit union is to help its members, primarily by extending loans to members who want to buy a house, acquire a new car, or start a business. Credit unions offer many of the same services as banks, including checking and savings accounts that are federally insured by NCUA, the National Credit Union Administration (which is the equivalent of the FDIC, but for credit unions).

We can watch our elected leaders discuss policy. But when was the last time any of us watched a bank board meeting or went to an annual shareholder meeting?

Credit unions, in contrast, hold annual meetings open to all members. All depositors are shareholders, and all it takes to become a depositor at some credit unions is a visit to the credit union, with proof of residency.

If you're fed up with the way banks operate and you want to do something about it, make the switch. Move your money out of banks and into a local credit union.


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