The Wonder and Wisdom of Smallness

In the beginning of Frank Capra’s 1946 classic masterpiece, “It’s a Wonderful Life,” protagonist George Bailey, played by James Stewart, asks his aging father why the family still runs a penny-ante Building and Loan. His father replies quietly, “George, I feel that in a small way we are doing something important: Satisfying a fundamental urge. It’s deep in the race for a man to want his own roof and walls and fireplace, and we’re helping him get those things in our shabby little office.” Later in the film, Bailey remembers his father’s words as he tussles with the evil Mr. Potter and his scheme to force poor-quality housing on the working poor of Bedford Falls.

Over the past few weeks, blogger Arianna Huffington and economist Robert Johnson have launched a viral social media campaign to convince Americans to transfer their funds to local community banks like George Bailey’s. The video for the “Move Your Money” campaign mashes scenes from “It’s a Wonderful Life” with cuts from the Congressional bailout hearings. The campaign equates the Big Four banks (Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo) with Mr. Potter and his cronies. It also encourages Americans to send a message “that we have had enough of the high-flying, no-limits-casino banking culture that continues to dominate Wall Street and Capitol Hill.”

We don’t live in the black-and-white world of George Bailey. But there are still lessons to be learned from “It’s a Wonderful Life.” The tone of the Move Your Money campaign is a little too vengeful. Although the banks certainly have much more to answer for, the campaign masks the fact that irresponsible borrowers also played a hand in the fall of our house of cards. And yet, the chief message of the movement, that customer should make finance more local for the common good, is critical to America’s economic and social recovery.

As for hurting the big banks, it is likely Huffington’s campaign won’t accomplish much. Many fear community banks may be too small to succeed. As Martha C. White notes in a recent Washington Post piece, the Big Four don’t make much money directly off of customer deposits: Although total deposits at Bank of America are around a trillion dollars, customer deposits are only around $83 billion. On the other hand, Felix Salmon, the financial columnist at Reuters, suggests that because The Big Four make a large profit through habitual overdraft frees, moving deposits could make a significant dent.

In any case, the worthiest aspect of the move your money campaign isn’t its potential to punish Wall Street. George Bailey wasn’t as concerned with vengeance against Potter so much as helping his neighbors achieve the American dream of financial security.

Moving money to smaller banks can do much to protect the ordinary American family. Small banks are not as exposed to the complicated securities that brought down the bigger banks. Although they generally don’t offer the same kind of services as larger banks, such as omnipresent ATMs, they are generally more reliable in tough times. In an interview last Sunday on National Public Radio, Dr. Simon Johnson, former chief economist of the IMF, noted that smaller community banks generally offer better deals, fairer treatment, and better terms on accounts than their competitors. They are more closely woven into the social fabric, and less likely to sell ordinary Americans down the river.

Although moving money to community banks won’t reform the banking system, it still makes sense for the broader economy. Since the beginning of his term, Federal Reserve Chair Ben Bernanke has advocated for an increased role for community banks. Although getting credit flowing was a condition of the bailout, the big banks have been reluctant to lend to small businesses, instead preferring to use their money for trading. If small banks can extend credit to strong borrowers in small businesses, they will help fuel job creation. Unfortunately, like Bailey’s bank in the film, these banks are now strapped for capital, and are unable to help the businesses and households they’ve supported in the past.

Lately, the administration has acknowledged the value of community banks for recovery. President Obama promised $30 billion of repaid TARP money to community banks in the State of the Union address. A separate program is being created to pump capital into banks in distressed in cities like Cleveland, Chicago, and Detroit. There are many complications with these efforts, but they must be overcome, as most attempts to boost employment will have little effect if the small business credit lines aren’t fixed.

Ultimately, moving money into community banks serves a greater purpose than populist retribution and perhaps even greater than rapid recovery. Community banks can help restore trust in the banking system and the economy in general. Perhaps the kind of neighborly faith found in Capra’s film is long gone. There are few George Bailey’s around any more, if there were ever many. But we would all do well to remember that a moral order undergirds American capitalism and being able to trust the person behind the money counter is key to both our material prosperity and social welfare.

Raúl A. Carillo ‘10 is a social studies concentrator in Lowell House. His column appears on alternate Fridays.