Ah, January. Instead of the most wonderful time of the year, we have now entered what many people see as the dreariest time. The decorations and lights of the holidays are gone, and the reality of another cold, dark winter has set in. Just in time though, Netflix has an offering that is bound to cheer you up and put a smile on your face, especially since it is based on a true story. Bank of Dave is the tale of Dave Fishwick, a successful small-town English businessman who, after making loans to friends and local businesses on his own, decides to open a bank so he can continue to benefit his community financially.
Image Credit: Burnley Savings and Loans
No spoiler alert here, I will divulge neither ending nor details. The movie did make me think about our banking system, though, and how we may often choose where we do business based on our familiarity with and the prominence of big bank names. For the next few minutes, however, I'd like for you to consider a couple of your more local options: community banks and credit unions.
Community Banks
As is implied in the name, these banks are local and community focused. These institutions are chartered under state law and also have their own industry trade group, the ICBA (Independent Community Bankers of America). Like larger banks, they are for profit and regulated, with FDIC coverage for their depositors. Unlike their national competitors, they can offer a much more personalized experience and focus on assisting people and businesses in their area. Depositors, staff, and owners usually live and work locally, so the banking experience tends to be much more personal. Some of the advantages of a community bank are:
Focus of Loans: community banks are primarily focused on making loans to local individuals and businesses, including start-ups.
View of Risk: restrictions on investment banking and trading prevent these banks from putting investors' money at unnecessary risk.
Relationship Based: staff typically takes the time to get to know you and your needs, not simply plug you into a formula. They also value the history of the community and businesses that have invested in it.
Cost: local banks often charge lower fees than bigger banks.
Because the bank depends on the community and vice versa, a symbiotic relationship is formed over time. During the Pandemic, local banks assisted their communities with PPP loans, home mortgages, and support for commercial real estate owners. The Pandemic also forced many of these banks to update their digital banking efforts, making their services more accessible and user friendly.
Credit Unions
One of the biggest differences between banks and credit unions is that while banks operate to make a profit --too often at the expense of their customers and U.S. taxpayers (see How We Enable Bankers to be Evil) -- credit unions are created as non-profit institutions. Another major difference is that credit unions are established for the benefit of their members, which is a group based on a geographic location (state, county, etc.), profession (teachers, farmers, etc.), or some other clearly defined factor. In essence, members buy into a share of the cooperative when they open an account. As owners, members elect a board of directors and have a say in how things are run. Because profits go back into the cooperative instead of being distributed to shareholders, credit unions can offer their members lower fees, lower credit card interest rates, and higher returns on their savings accounts. Deposits are also insured at these entities, but by the NCUA rather than the FDIC.
Like local banks, credit unions are committed to their communities and have a deep understanding of their needs. Though the circle of investors may be smaller than that of a community bank, a credit union is still focused on the geographic area in which it serves and has a deeply vested interest in contributing to the financial success of local businesses and individuals. If you like the idea of working together with others toward the common good, a credit union might just be the right fit for you.
Considerations
Since these both sound like great options, you may wonder why anyone would chose a big, more impersonal regional or national bank over local options. Though they have many positive qualities, community banks and credit unions do have some drawbacks. Being smaller entities, neither is able to offer the variety of financing options and rates that large banks often can. They also may not have a widely accessible network of branches or ATM locations, and their digital platforms may lack some of the sophistication and features of bigger banks.
Ultimately, you will have to decide which type of depository is best for you. I would argue though, that investing at least a portion of your money in a local bank or credit union is part of Better Capitalism best practices. By choosing a local entity, you are much more likely to aid in assisting the community in which you live, helping both the small businesses and people that are your friends and neighbors. This action, in turn, helps your home town to prosper and makes it a better place for you and your family to live.
I did say no spoiler alerts, but I must tell you that the Bank of Dave (aka Burnley Savings and Loan Ltd.) has lent over £30 million (GBP equivalent to $38MM) to locals, with all of its profits (which means it is profitable) going to local charities. In a similar way, your local bank or credit union is contributing to the health and prosperity of your own community. Being a part of something this mutually beneficial is like being a part of a wonderful, uplifting movie, and who wouldn't want to be a part of that!
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