National Bank Transfer Day

One promising thing that has come out of Occupy Wall Street has been the formation of National Bank Transfer Day.  On November 5th thousands of Americans will close their accounts in Too-Big-To-Fail (TBTF) banks and open accounts in credit unions or community banks.  

These TBTF banks have not learned their lesson since 2008’s near systemic collapse.  They may have become flush with cash from central banks, but they still have not deleveraged** their balance sheets.  To the contrary, they have continued to invest trillions of dollars in risky derivatives and stinky packaged debt obligations—this time with exposure to sovereign debt.  Bank of America and JPMorgan recently moved 74 trillion and 79 trillion dollars in off-sheet derivatives to their banks, respectively.  These clandestine moves provide collateral for the derivatives, in the form of depositor bank accounts.  Shockingly, if these banks fail then the derivative holders will have their losses settled first.  That leaves the FDIC holding the bag for over a trillion in depositor bank accounts.  The FDIC only holds a small percentage of what it insures, so it too would face insolvency.  FDIC has been publicly outspoken on this issue, but to no avail.  The Fed has approved and encouraged these moves, putting them at odds with the FDIC.  My guess is the Fed realizes that it would have to backstop the FDIC and reimburse the depositors before there is a system-wide bank run.  They better start their printing press!

If you have an account at a Bank of America, JPMorgan, Wells Fargo, and an other TBTF bank then you may want to consider moving it  to a credit union or community bank.  The 2008 crisis came without much warning, but this time you can protect yourself.  It’s up to you to make the prudent choice.