bank earnings and your safety

Hey

Earnings for the previous quarter revealed something very interesting and transparent about the big banks and how they continue to make their money. It is primarily through trading and not through banking activities such as lending. Overall, loan losses were down this quarter at the major banks which should provide a boost to their stocks. But the banks' slowdown in trading and other activities had them lowering earnings levels for the quarter.

The New York Times came out with an article stating how banks such as Citigroup and Bank of America took big hits because their trading desks made less money than desired. JP Morgan Chase released good earnings because they released funds meant for possible loan losses. And anyone who thinks Goldman Sachs is a retail bank needs to explain it to me. They are an Investment Bank that had to switch to retail when the crash occured.

As mentioned before, all of these banks were able to pad earnings this quarter with money previously designated for loan losses that didn't occur. This is not a good development. Why didn't they loan the money out instead? This type of action either shows a lack of confidence in the US economy and you as a possible loanee or they are worried about their stock price and put that above helping to drive the needed growth in the U. S. economy. Son't be surprised if it is the latter.

Where are the loans? We gave these firms 700 billion dollars not just to trade and make money for their shareholders but to be a partner in bringing the economy back by making loans to deserving Americans and their businesses that create jobs. The interest received from those loans is a mere pittance for the government and the country as a whole compared to the long term earnings the government would receive in payroll and other taxes had the banks loaned that money out to deserving businesses instead of trading it.

These activities by the mega banks has brought on a movement of going to local banks because people (myself partially included) know they will see their money in work in their communities creating jobs and revenue. This movement needs to continue to grow until the big banks get the message that not loaning money out to deserving businesses is not acceptable. You will hear the banks say their clients are afraid to expand and at the same time hear those same clients complain about a restiction in credit from banks. I believe the businesses, not the banks.

This post is not a desire to eliminate the big banks. They have some great financial products and an important role in the U.S. economy. It is to get them to realize that there is a public needing its partnership to expand our economy.

Local Banks

Recently, I went to the neighborhood local bank and started a savings account. I did this after researching what the effects of such a move would make on myself, the community, and the bank. I have come to the realization that there is a very important place in the banking industry for local banks. This action is not simply a direct move away from the mega bank. Mega banks also provide a service to the consumer that local banks cannot such as multiple branches and ATM's. It is simply an action taken to provide business to local bankers who keep their plan simple and their mission clear to the community. I encourage everyone to at the very least take a look at your local bank to open up an account.

The savings account was opened for a few reasons. The realization that I will actually see my money at work in the community is exciting to me. Also, local banks make the most of their revenue from banking and stay away from making their profits from other sources like trading. This creates an absolute focus on the business of banking which the megas don't have anymore. The opportunity for future business with the local bank will be made a little easier as their decision makers are in the building.

The idea that my money will be at work providing loans to local businesses is a good feeling. That is the essence of the local bank that the megas cannot match. Since they have a large stake in the community, they will be right there to help when needed. For instance, there is a local bakery right near me that received financing from the local bank. You can bet that I will be frequenting that bakery regularly knowing that people in the neighborhood have put in almost all the equity into the business.

The local banks are focused on banking. The megas have shown a lack of focus on banking and more of a focus on trading. This is clearly evident in their use of TARP funding. It was used for trading profits while lending did not get even the slightest bump. Local banks provide that focus on banking because that is their main source of revenue.

The third reason why I opened the account is that I will actually get to know the bank at a very close level. The decision makers for the bank are either in the same building or at the very least same neighborhood as the tellers and the rest of the bank. That provides an opportunity to create a lasting relationship with individuals of a local bank that I would not have access to at the megas.

So remember to check out your local banks. They provide a laser focus on banking, look to be the principle lender in the community because they are part of the community, and show a level of access that the megas cannot provide.