Who do I trust with my money?

By Volodymyr Kish

Оne of the interesting offshoots from the Occupy Wall Street movement that has spread throughout the US and more recently into Canada, is an initiative aimed at persuading people to move their bank accounts from the large banks that dominate the market to small community credit unions. In the US especially, there is growing discontent with the rapacity and irresponsibility of large American banks that came to light in the wake of the infamous global financial collapse of 2008.

This has given rise to a grass roots movement that has designated November 5 as Bank Transfer Day in the US. Tens of thousands of people have pledged on that day to move their banking to local credit unions that are focused more on member and community service rather than the self-serving and at times destructive “profit at all costs” motivations of large global financial institutions. As much as large banks and financial institutions would have you believe that they are built on service and integrity, the reality of the 2008 meltdown would tend to indicate otherwise, at least in the US, and particularly when it comes to the large multi-nationals.

The fact is, as the larger banks grow, the more difficult it becomes for governments and their regulators to control their banks’ actions in the best interests of their home countries and the communities they should be serving. The profit motive, or “greed factor” as the Occupy Wall Street protesters would put it, becomes the dominating force in what they do.

The shameless lengths to which they will go to was amply demonstrated by the actions of the Citigroup financial conglomerate which the American Securities Exchange Commission accused of betting against their own investors in a billion dollar sub-prime mortgage securities deal in 2007. The investors lost hundreds of millions of dollars, while Citigroup came away with $160 million in profits. Most of the major Wall Street financial giants were prosecuted for similar reprehensible behaviour, though regrettably no one went to jail for their financial shenanigans. Instead, they settled for large fines (Goldman Sachs - $550 million; Citigroup - $285 million; J P Morgan - $153.6 million; Bank of America, $150 million; etc.) and continued on their merry way. To date, the laws and processes regulating these corporate deadbeats remain little changed from before the 2008 meltdown.

All this should be no surprise. Most of these large institutions are accountable to no one but themselves and a small elite of financial power brokers. Although theoretically accountable to their shareholders, most of the owners of these corporations are other large corporations or investment funds with interlocking directorships, a system that ensures that individual shareholders have very little say in how they operate. And the way they operate all too often is in the interests of maximizing short term profits, with little concern, as the meltdown of 2008 proved, for the well being of the societies, economies and countries in which they operate.

It is therefore no wonder that the average "Joe" or "Ivan" is now starting to look at community credit unions as an alternative to the large banks. Credit unions are financial institutions that provide almost all the same services as banks do, and like banks, are also interested in making a profit. However, they differ fundamentally from banks in a number of key ways.

First and foremost, credit unions are purely democratic institutions. Each member of a credit union has one vote in the decisions made as to how the credit union will operate, regardless of how much money he or she may have invested in the credit union. With banks, voting rights are directly tied to how many shares an investor may have; hence dollars determine the power a shareholder can exercise. This distinction is key; in a credit union it is the individual that is important - in a bank it is the number of dollars an individual has that is primary.

Secondly, credit unions are based on a “bond of association” or community that they serve. This may be based on workplace, occupation, ethnic identity, local geographic domain, or other tie. This bond plays an important role in the credit union’s operations in that a significant portion of the profits of the credit union are used to maintain and develop the health and activities of the associated community. The credit union is integrally tied to the well-being of the community that it serves. This is reinforced by the fact that the directors of a credit union are not some mercenary professionals for hire, but are professionals that come from the credit union’s own community. They have a vested long term interest in ensuring that the credit union operates in a responsible and effective manner.

We are fortunate that in Canada, our regulatory systems are stronger than the ones in place in the US, and we did not have the financial scandals here that happened south of the border. Nonetheless, the fundamental differences between banks and credit unions are the same here in Canada, and it behoves every one of us to ask ourselves who should we trust with our own money? While it may be true that one may get a fractional percentage point better return at a large bank, are we comfortable with how that bank operates, where it invests the money and who profits from it? Further, how much has that bank contributed to my community, to my culture, to my social well-being? I know from being a director at a credit union, that I would have no problem answering those questions with no small measure of pride.