Filed under: Consumer Financial Protection Bureau | Tags: assets, banks, CFPB, credit unions, Dodd-Frank, run
This whole idea is picking up steam along with the Occupiers. The concept is that on November 5th, consumers can vote with their feet and express dissatisfaction with banks by moving their money to a credit union. To people stung by new fees, one would think such a proposal would have the chance to go viral. I don’t think it will because people really need to be mad to generate enough will power to overcome the inertia of changing their bank accounts. Ironically, the new fees are the result of The Dodd-Frank Act and the creation of the CFPB which was initially supposed to reform Wall Street but now sees itself as providing consumer protection. People are mad, but they aren’t that mad.
Let’s assume for the sake of argument that a good percentage of the population actually did get that mad and moved their money in one day. What would happen? It’s actually easy to predict: utter chaos. It turns out that having too much by way of assets is not a good thing for a credit union. The influx of cash to the credit union movement would immediately plunge the receiving credit unions into a state of ill-health.
Meantime, on the bank side, we have historical evidence of what happens when everyone takes their money out of the banks at once. It’s called a run. During the depression, many banks went out of business for that reason. The exposure would be so great that the Federal Reserve would act, most likely, to close down consumers’ access to banks and credit unions until the dust settled. You think people are mad now? Imagine hundreds of millions of people not being allowed access to their bank accounts for a week!
Now if such a shift occurred gradually, over time credit unions could manage the capital and banks would not have the immediate pain of a run. Certainly, many credit union advocates have sought this over the years. Timing is everything though and so is being careful what you wish for.
Edit: According to CU Times, the Bank Transfer person is not affiliated with the Occupiers.
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