How To Kill a Bank (Part 1 of 3)

Mod Note (Andy): Best of Eddie, this was originally posted in 2010.

There is a populist movement gaining steam that could spell big trouble for the major banks. Spearheaded in January by Arianna Huffington, the Move Your Money movement is proposing a strategy to exert public influence over the banks they've labeled the "Big 6". The Big 6 banks identified are Citi, Bank of America, JP Morgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley.

The strategy is to encourage individuals to close their accounts at these 6 banks and move their money to a local bank. The reasoning behind it is that local banks re-invest in the community and generally have more conservative profiles. The subtext is that the only way to shrink banks deemed "Too Big to Fail" is to pull our money out of them. With government solidly in the bankers' pockets, the reasoning is sound.

The movement has picked up some high-profile supporters, and got a major boost by this video from Bill Maher:

The notion is making some people nervous, and it should be. When questioned about it specifically, Timothy Geithner squirmed and tried to change the subject. When pressed on it, he said he didn't think it was a good idea but he agreed that customers should hold banks to a higher standard.

Andrew Ross Sorkin, author of Too Big To Fail, was less circumspect when he was questioned about it. He said, "Theoretically, philosophically, it's a terrific idea. But just to take the other side of the coin I'll tell you this – if we all listened to Arianna and we all ran out and did this tomorrow – the Too Big To Fail firms would all fail all over again."

Is the movement getting legs? Maybe. According to a Zogby poll, 9% of Americans have begun transferring assets out of the Big 6 and into community banks. And the Los Angeles City Council just voted 12-0 in favor of moving the city's money out of the majors and into banks that invest in the community. In fairness, however, Wells Fargo is heavily invested in Los Angeles and definitely meets the council's criteria. Nonetheless, the movement is taking encouragement from the city's vote.

This thing has really had me thinking over the past 72 hours. What I've determined is that the movement's heart is in the right place, but their implementation is lacking. Putting aside our own interests in banking for a moment, let's just say that we wanted to determine what would make this protest most effective.

Realistically, 2 of the 6 banks aren't even exposed to a populist backlash in any meaningful way. Goldman Sachs and Morgan Stanley are bank holding companies in name only, and have no interaction with the general public other than helping themselves to mountains of interest-free money at the discount window.

That leaves 4 banks that have genuine exposure to Move Your Money (they are Citi, Bank of America, Wells Fargo, and JP Morgan Chase). If things continue as planned by Move Your Money, these banks may see significant declines in deposits that will eventually effect their bottom line. It won't happen overnight, and very little about the way they do business will change in the long run.

I simply don't think the people behind the movement are thinking big enough. Rather than attacking all 4 banks in a relatively uniform manner, wouldn't it be more effective to focus all the movement's energy on one bank and obliterate it? That would send a message.

There is a way to destroy 1 of the 4 major banks and, if the effort were managed properly, the Fed would be powerless to prevent it. Timed properly, the thieves in D.C. could even be prevented from stepping in to save it.

It has been an interesting academic exercise for me these past few days, and I think I've come up with a plan for consumers to shut down one of the major banks. I'll post it in Part 2 later this week, but see if any of you can see where I'm going with this and beat me to the punch. Of the 4 major banks, 3 make attractive targets, and 1 is an absolute sitting duck.

Just so I can't be accused of fomenting another financial meltdown (why should the banks have all the fun?), in Part 3 I'll post the antidote to this poison – a plan the 4 major banks could put in place in less than a week to repel the type of attack I have in mind. We'll see if they're paying attention.

Just in case anyone is wondering why people would want to do something like this, I'll leave you with this gem:

http://www.huffingtonpost.com/ernest-nitzberg/the-6200-insult-how-chase…

Any questions?