More reasons to move your money

While little banks are allowed to fail, too-big-to-fail banks charge bigger fees

Published February 23, 2010 9:31PM (EST)

A few insights about banking gleaned from today's headlines.

Smaller banks, the kind that are allowed to fail because a: their failure won't bring down the global economy with them and b: they don't own Congress, are in trouble. According to the FDIC, reports Bloomberg, "'problem" lenders climbed to the most in 17 years in the fourth quarter."

Regulators are closing banks at the fastest pace since 1992, seizing 20 lenders through seven weeks this year after shutting 140 institutions in 2009 amid loan losses stemming from the collapse of the home and commercial mortgage market. A total of 28 banks failed in 2007 and 2008 combined.

"The pace is going to pick up this year and is going to exceed where we were last year," [FDIC chair Sheila[ Bair told reporters.

But big banks, the kind that have received trillions of dollars of support from the Treasury and the Fed because a: they own Congress and b: their collapse would destroy us all, are doing great! How do we know that? Because bonus payments to Wall Street financial institution employees rose 17 percent in 2009, to $20.3 billion, from $18.4 billion in 2008. Still a long way off from 2007's record $32.9 billion, but hey, there's always next year.

Another difference between big banks and small banks? Big banks charge higher fees to customers for just about everything. The Baseline Scenario points us to a report by Stacy Mitchell at New Rules Projects with the details. Big banks charge more for overdrafts, more for bounced checks, more for ATM withdrawals. Smaller banks, meanwhile, offer higher interest rates on savings accounts and CDs.

Move your money. The little banks need it, and the big banks will make you pay through the nose for the privilege of keeping it with them.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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