Wednesday, July 15, 2009

Why Local Banking is More Effective than Political Whining

It's always fun, and sometimes funny, to bust on atrocious real estate developments. But moaning and writing letters to local planning & zoning doesn't usually change things. Ultimately, in a capitalist economy, pols and planners must respond to the owners of capital. The real estate developer whose building will house 800 new jobs and create a few hundred more during construction is going to get greater weight than some random, angry letter.

Political activism can be very effective, but usually works best when the project is going to be owned by the public. Jane Jacobs helped kill the Lower Manhattan Expressway, but there was little she could do about the megablock, boxy office buildings that were popping up in NY at the time.

If we want to impact privately-owned developments positively, working through the political system simply won't be that effective. A developer employing hundreds of people is going to get his call returned faster than you will. A better way to impact our neighborhoods is to put ourselves in the position developers do, and use our personal financial capital to influence our communities. And one of the most effective ways to do this is to open accounts at community banks and other local institutions.

The Federal Reserve requires that banks hold 10% of deposits in excess of $44 million in vault cash or in accounts with the Fed. The other 90% gets loaned out. This means if you keep a balance of $5,000 at a bank, they can loan $45,000 into your area. So if you bank locally, you're now creating that amount of capital for your community. Moreover, many commercial loans made by local banks are often for amounts between $100,000 and $500,000, much of which goes to locally-owned retail. So a $45,000 contribution can finance nearly half of a new store. And if you don't like what the bank is financing, the customer service reps there will listen to you, because they don't want their sources of capital running back to BofA.

Another aspect of local banking that's important is the resumes of the loan officers. Check these out. I took a look at some of these for some banks here in the DC area and saw a lot of Maryland and George Mason grads, which was remarkable for a transient region. They are also the sort of people who can evaluate a project based on their personal knowledge and experience with a neighborhood, and don't need to follow guidelines set by a distant executive who might know the demographics of a neighborhood, but not its unique characteristics.

I often here people complain that there's not enough character in their neighborhood or city. Well, it's not that hard to help create some unique qualities in your town, as long as you don't think you'll get there by trying to influence elected officials.

1 comment:

  1. I would add the importance of supporting credit unions, which are often locally-focused and promote more democratic flows of capital due to their ownership structure.