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Imperium Watch: Small Banks, Credit Unions Grow

Consumers may pull more deposits from big banks this year.

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Friday, March 02, 2012

"Remember, remember the fifth of November." In the U.S. last year, that was Bank Transfer Day. On that day and before it, many Americans moved their bank deposits out of banks with $10 billion or more in assets and into credit unions and smaller banks.

Some $5 billion was pulled from the big banks between the end of September and Nov. 5 by consumers angry at everything from high fees to the banks' refusal to lend even after receiving taxpayer bailouts. Impatience at the government's failure to downsize the so-called "too big to fail" banks also played its part.

In terms of the overall volume of deposits at the megabanks, the so-called "Move Your Money" crusade didn't seem to make much difference. Worries about Europe's financial troubles and about various investment instruments led corporate and large individual investors to take money out of foreign banks and out of those instruments and put it into the large banks that others were removing from money from, so deposits in the large banks grew overall in 2011 at a greater rate than deposits in smaller banks.

Some of the money that went into the big banks, however, will no doubt find its way back into other investments and foreign institutions when the coast is clear. Meanwhile, depositors angry at what they experience as consumer-unfriendly behavior on the parts of the big banks here will likely continue to take money out according to a study done last summer by cg42, a Connecticut consulting firm that polled 5,600 bank customers.

Seventy-one percent of those responding to the survey, titled "Retail Banking Brand Vulnerability Study," told cg42 they don't believe their banks make consumers' interests their highestpriority; half said they are uncomfortable with the size of the largest banks.

Cg 42 projected that by late 2012, the 10 largest retail banks in America could see losses of $185 billion in deposits because customer frustration at high fees (including overdraft fees) and low dividends was "at an all-time high."

In the Valley, consumer anger at the big banks isn't just talk. Last week John Heaps, president of Florence Savings Bank, was interviewed by the Northampton-based Daily Hampshire Gazette about gains his bank has made that may be attributable to Occupy Wall Street and other movements that encouraged people to remove their money from the very large institutions. "Heaps said where Bank of America and the banks it merged with once controlled upwards of 70 percent of the local checking market, this has dropped dramatically to only around 20 percent now," the Gazette reported.

Florence Savings harvested nearly $100 million in new deposits between September, 2010 and September, 2011, Heaps said, and in December, 2011—not long after the peak of the Move Your Money drive—it got the most new checking accounts of any month ever.

And for some time now, discontent with the big banks has led to an explosion of growth in deposits at credit unions. UMass Five College Credit Union has been growing by 5 percent a year since 2007, according to marketing director Jon Reske, but during the last six months of 2011, growth was 11 percent higher than in the corresponding period in 2010. And, said Reske, "...in 2011, 47 percent of the new members were between 18 and 30." Even for a credit union connected with UMass, he said, "That is extraordinary."

During the last seven years, Freedom Credit Union, headquartered in Springfield and now the Valley's largest credit union, has seen its assets grow from $263 million to $450 million; for the last three years, in spite of unemployment and foreclosures in the area, Freedom has taken in $1 million a week in new business.

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