Bank Transfer Day

Bank Transfer Day, today, was apparently not the anticlimax that most observers had expected. Probably 2 or 3 million consumers and a significant number of small businesses had already moved their accounts, including about $30 billion in deposits, from Wall Street banks to local community banks and credit unions before Friday, so how many could be left to make the move on the actual day?

There nevertheless was a lot happening today. At least three of the top 19 banks shut down large parts of their online banking systems for the weekend. The banks were pleading “scheduled maintenance,” and I am sure they did take advantage of the shutdown to do maintenance, but when a routine four-hour maintenance window gets expanded to more than 40 hours, you can be sure that more than maintenance is going on.

Banks are restricting their online access to try to force leaving customers to go to branch offices, where they hope to talk them out of closing their accounts. There is little the large banks can say to their departing customers, though. For the average banking customer, any bank will do — the most expensive banks don’t really offer any advantages over the least expensive ones. Consumer advocates promoting bank transfer day anticipated this kind of friction from the banks, and had this simple advice: wait a few days if that makes it easier. The objective of the day is not to suffer or be inconvenienced, but just to move your money.

The media seemed to focus mostly on the Occupy protesters, particularly major marches in Los Angeles and Portland, Oregon. There were coordinated “marches” to bank branches in dozens of cities, leading to at least five arrests. Police in Dallas use force and pepper spray to clear protesters and others from a sidewalk in front of a bank branch, but that was apparently the only mass violence.

There was some spillover into the United Kingdom and Canada. Wall Street banks obviously don’t own half the bank branches in those countries, but still, some banks are more local than others, and some people were moving their accounts or out on the street protesting.

Protests might make the news, but the most important actions were done by the smallest groups of two or three people going to the bank together for moral and logistical support. Early estimates suggested that between 50,000 and 100,000 people would move their checking accounts today, but reports on social media suggest a number larger than that, along with a surprising number of credit card cancellations, perhaps as many as a million. The credit cards are mostly symbolic — Americans hold far more credit cards than they actually use — but even symbolic actions can help people form new habits of action.

The giant banks may not financially miss the deposits they are losing today, but they are showing that they are worried about losing customers. They take for granted the chance to advertise potentially expensive services to their customers, and that is a window of opportunity that is shrinking today.

This Week in Bank Failures

Among the other developments this week in the financial situation in Greece, we learned that Greece is now a de facto European colony. Politicians in Germany and a newspaper in London called for the cancellation of a referendum in Greece and the removal of the prime minister, and tonight, indications are that Greece will be complying.

But it is not as if Europe has won a victory over Greece. If EU leaders took a hard line from the beginning in their dealings with Greece to try to strengthen their central control of Europe, the strategy has backfired. A series of increasingly clumsy interventions has turned an awkward situation into a disaster, and the European Union and IMF are to blame for most of the damage: a depression gripping Greece while half of Europe’s giant banks face insolvency. That’s a fate that this week claimed MF Global, a Wall Street hedge fund (confusingly, and perhaps improperly, organized as a brokerage) after it took losses on European bonds that declined in value as a result of European mishandling of the situation in Greece. Some of the banks in Europe could be in equally dire condition for the same reason. Now having a history as agents of disaster, the EU is left with a very small platform from which to manage the European economy. For the next 20 years at least, the EU will be hearing from member states and bank executives, “We can’t go along with that — look what happened to Greece.”

There was talk this week of expelling Greece from the euro zone. That is something that, legally speaking, can’t be done, but if Greece is now a colony with only shreds of democracy and sovereignty remaining, the law will not be an obstacle. Extricating Greece from the euro, if that has to be done, will precipitate the biggest banking crisis in the history of the euro, if not the history of Europe.

AIG slipped farther from profitability in the latest quarter with big losses in its insurance businesses on top of its usual losses from unwinding and restructuring. AIG opted to retain a 33 percent share of AIA, the east Asian life insurance unit it spun off a year ago, and that’s a decision it may be regretting now. The AIA shares have declined 20 percent from their summer peak, and AIG must now raise $7 billion to repay a note it used to retain the AIA shares. In its airplane leasing business, AIG is forced to recognize losses as it retires more of its airplanes, which have a book value that is far higher than their commercial value. All this noise obscured dismal results in AIG’s core U.S. insurance operations. There, losses were not awful, but revenue growth is unlikely and the prospects for profitability are not particularly strong. AIG remains mostly owned by the U.S. Treasury, which stands to record a huge loss as the company fades.

Bank Transfer Day is tomorrow, but most supporters have already moved accounts from Wall Street banks to credit unions and local community banks. The campaign is a big deal for credit unions. The Credit Union National Association (CUNA) is telling us that credit unions gained 650,000 new customers in October — a year’s worth of new customers in one month. Similar numbers are possible again this month. Bank Transfer Day is a social-media movement specifically promoting credit unions over Wall Street banks, but a larger number of consumers are moving their banking to local community banks. All this consumer action is motivated mainly by the fear of new fees from the larger banks, and it is being supported by both industry groups and political groups.

Almost half the accounts Wall Street has lost so far were at Bank of America. Its CEO on September 29 announced a crackdown on its debit card customers, who he characterized as freeloaders mooching off of the banking network without paying their share of the costs. A follow-up “p.r. offensive” in October failed to convince anyone that consumers are being unfair to Bank of America. In surveys, only a small fraction of the bank’s customers said they would pay the new fees. About two thirds said they would move their accounts or turn in their debit cards. Bank of America was emphatic this week when it announced it had had a change of heart about debit cards, but not all of its customers are convinced, and the outflow of deposits from Bank of America shows every sign of continuing.

Reclaim the Dream is also asking supporters to take the additional step of closing credit card accounts at Wall Street banks. Credit cards haven’t had nearly the level of public discussion this year that they had last year, but indications are that hundreds of thousands of supporters are closing credit card accounts this week at Wall Street banks, mostly at Bank of America and JPMorgan Chase.

Tonight at closing time state banking regulators closed two small banks, each with less than $200 million in deposits.

The more interesting and complicated case is SunFirst Bank, with three branches in Utah. Cache Valley Bank is acquiring 91 percent of the deposits and 88 percent of the assets. The FDIC is retaining 9 percent of the deposits, in accounts that are frozen by litigation. The bank was either mixed up in or a victim of two criminal cases that federal authorities are pursuing. One group was operating online gambling sites. Gambling sites are illegal in the United States anyway, and to make matters worse, some sites may also have been stealing money from their customers. A vice chairman at the bank had already been indicted for his alleged involvement in disguising illegal credit card transactions for gambling sites. The indicted vice chairman is also said to be associated with the defendant in the other case, involving a fraudulent payment-processing operation that the Federal Trade Commission says fabricated credit card transactions in order to steal money from cardholders and their banks. The frozen accounts are probably related to these two cases.

The problems at SunFirst prompted the FDIC in January to issue a warning about the risks to banks that process money-laundering transactions, something that can occur whenever banks fail to determine the identities of their customers. Around the same time, the FDIC issued an order barring SunFirst from processing most kinds of third-party payments. The FDIC’s warning to other banks carries more weight tonight now that SunFirst has failed.

The smaller bank closing tonight is Mid City Bank, with five branches in Nebraska. Purdum State Bank is acquiring the deposits and assets. There is a twist here too. Tomorrow when the acquired branches reopen, Purdum State Bank is changing its name to Premier Bank.

The Drug Candidates

Maybe it was a publicity stunt. After all, 100,000 people have viewed a speech presidential candidate Rick Perry gave last week. They are watching to try to determine whether he was stoned or not, but they are watching. Another 2 million have watched highlights of the speech, which give essentially the same impression as the full speech. Search YouTube for “Rick Perry drunk” and you can find all this easily. The debate over whether Perry was under the influence of alcohol and/or a controlled substance rages on, a week later, and it’s probably one of those questions that will never be definitively answered.

What you can say for sure when watching Perry’s speech, though, is that he was having trouble keeping a straight face. That he wasn’t feeling the kind of respect for the audience that normally goes with political speeches. That his speech was slurred, with words running together, key consonants missing, and misplaced emphasis in almost every sentence. That the audience, consisting largely of his own supporters, was embarrassed and uncomfortable for most of the 25 minutes. Perry may or may not have been on drugs during the speech, but he was presenting himself as a man who was.

Drug use of another kind turned up in what is officially considered a campaign advertisement for Herman Cain, but what is in practice a tobacco advertisement. It consists of little more than a campaign staffer puffing on a cigarette. Search YouTube for “Herman Cain smoking” to see this one. Tobacco companies are not allowed to present television commercials that show people smoking, but they are permitted to funnel unlimited sums of money to candidates who do so. It is the kind of loophole that a man who is not serious about running for president might employ.

A public opinion survey found that the Cain advertisement made most voters uncomfortable, including voters of his own party. Viewers saw the commercial as an endorsement of cigarette smoking and didn’t feel that promoting tobacco use was a proper part of political discussion.

In both cases, candidates are associating themselves with the idea of drug use, and voters are uncomfortable and resisting that message. People don’t believe drugs are the answer. But there are political candidates who are willing to give drugs a try, at least as a political strategy.

Return of the Credit Card?

Major banks are trying to use the recent controversies surrounding debit cards to their advantage, with a major push to sign up new credit card customers. The theory, apparently, is that consumers who get frustrated with debit cards may use credit cards instead, and it not an entirely unreasonable thought. From what I have heard, highly qualified prospects have received a year‘s worth of credit card offers in the past seven weeks, and other prospects have also received an unusual volume of card offers in the mail.

There is little evidence, however, of a big move by consumers to credit cards. To the contrary, many people are making a point of canceling credit card accounts issued by the major credit card banks in connection with the Bank Transfer Day, Move Your Money, Reclaim the Dream, and Occupy campaigns. Separately, I have seen some indication of people who now see paying in cash as a political statement. “Pay in cash and stick it to the man,” is the way one friend explained this concept to me. Ironically, paying in cash is being used to make the same statement that others are trying to make by boycotting government-issued cash and paying in alternate currencies, usually involving silver coins. Either way, part of the idea is that this keeps more of the money in the local economy, and on the surface, this seems likely enough.

Banking Giants Show Lack of Pricing Power

It seemed like the largest banks had a sure-fire way to raise a few hundred billion dollars. Monthly fees on debit cards would be their new cash cow. Consumers, after all, need their debit cards, and they couldn’t easily leave a bank to avoid the new fees if the other banks were charging something similar. It would be the same kind of windfall as the 3 percent transaction fee the giant banks added to foreign-country credit card transactions nine years ago.

Yet this new transition didn’t go smoothly at all. While other banks were “experimenting” with the new fees, Bank of America went charging ahead with the announcement of a $5 monthly fee. Most of its customers made plans to switch banks. Some switched from cards to cash. Push came to shove last week, when Bank of America went on a self-styled public relations offensive to justify its high fees while several other banks quietly withdrew their debit card fees. Today Bank of America realized it was out in front all alone, walking itself to the slaughter. It announced a change of heart.

It may be too late to repair Bank of America’s image or its stock price, which fell when the new fee was announced and fell again when it was canceled. Bank of America may already have lost more than a million customers, and there will be more when customers get around to it. CNN has already run its program to show viewers how easy it is to change banks. Consumer activists are going ahead with this week’s Bank Transfer Day which encourages consumers and small businesses to move accounts to local credit unions. Credit unions have gotten a fortune in free publicity from the controversy, and there, the main point that has finally sunk in with consumers is that credit unions are simpler than banks.

Banking customers who are worried about new fees will just go ahead and switch regardless of the fate of this one fee. The fact is that the largest banks have the largest expenses and have no other choice but to raise fees somehow. Customers who stay with these banks will be facing a new fee every year. They can either stay put and deal with the next fee when it comes along or switch now to a bank that isn’t so expensive to operate or so difficult to do business with. Consumers have learned that they do have choices when it comes to banking. Knowledge like that can’t be undone.

For the banking industry, this episode is a rude awakening, or at least it should be. The noisy consumer resistance proves that banks have lost the pricing power that they enjoyed up until last year. The banking giants can no longer simply budget how much consumers will pay, nor can they sit in the back rooms and divide the consumer market up among themselves. They now have to compete. They can charge only what the market will bear. If their costs are too high, they have the option of shutting down. The U.S. banking industry as a whole hit its 2007 peak overextended by about 30 percent. If cutbacks have been slow to come, it is because customers have been content to stay put. But now, that appears to be changing.