Does Boycotting Big Banks Make Sense?

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By Martha C. White

Posted Monday, January 4, 2010 – 10:16pm

Arianna Huffington is mad as hell and not going to take it anymore—or doesn’t think you should. Last week she exhorted Americans to yank their money out of big banks and open accounts at community banks instead. She called out the Big Four—Bank of America (BAC), Citi (C), JPMorgan Chase (JPM), and Wells Fargo (WFC)—by name for their “slap in the face to taxpayers.” The crusade includes a link to a new Web site, moveyourmoney.info, which includes some video clips of It’s a Wonderful Life and a tool for finding a new bank courtesy of Institutional Risk Analytics.

This is a great example of populist indignation made practical (HuffPo says it does its banking with a smaller bank that specializes in startups). It’s also a great example of why populist indignation shouldn’t drive policy. We get the outrage: The banks did something bad, so let’s spank the banks. But let’s also look at the math. Would it even be possible for the roughly 72 million American families who hold checking or savings accounts to appreciably diminish banks’ holdings just by closing their accounts?

Banks make their money in a lot of ways, such as by collecting fees. For instance, banks are projected to collect $38.5 billion in overdraft fees this year, some 90 percent of which is paid by only 10 percent of the customer base. While the new opt-in requirement for overdraft protection will probably lower this number in the coming years, it’s safe to assume that banks will come up with other ways to extract their pound of flesh. A recent Bankrate study showed that fees for everything from out-of-network ATM usage to account maintenance rose in 2009.

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