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Move Your Bank Accounts, Defang the Beast


By FZ - Posted on 13 March 2011

-Blogged by Andrew McInnes on BankOfAmericaSuck.com

March 12, 2011- The protests in Wisconsin against the actions of Governor Scott Walker’s attack on collective bargaining rights have given rise to interesting methods. One in particular is of interest to this website, because it represents a live test of sort of action which I wrote about in this post.

A group of about 200 protesters swarmed an M&I Bank location in Madison, due to that bank’s having supported Governor Walker’s now much-regretted election. M&I Bank has whinged that donations to Governor Walker’s campaign were not from bank funds, and that they really just love everyone equally.

Apparently, “M&I’s Senior Vice President Mark R. Hogan donated 5,000 dollars” to Walker, which is his income, derived from working for the bank. However, a senior vice president, contrary to popular opinion, is not at liberty to donate to just any candidate he might fancy. Quite the opposite, a senior VP must serve as a ‘good example’ for the underlings.

In essence, anyone the senior VP votes for, has been approved by M&I Bank. It’s basic modern corporate dynamics: the higher the employee’s importance, the more they are organs of the institution’s political positions. Claims to the contrary are spurious, and ignore everything which J K Galbraith ever wrote on the subject. Therefore, M&I Bank has supported Governor Walker, although through somewhat indirect means.

It is only reasonable to assume that M&I Bank needs to be put in its place, and Wisconsin firefighters did just that. They picketed the Madison branch of M&I, and withdrew about $192,000 in deposits. This had the most pleasant effect of shutting the branch down.

This is a teachable moment! It shows how close to the edge M&I, and indeed all banks operate. They are one angry protest away from running out of money. Let’s consider the specific M&I branch which was successfully shut down. It is located on Capitol Square (address is easy enough to find) and as of 30 June 2010, it had about $818,243,000 in total deposits. [source, search for "Dane Country", first entry]

Now, putting the pieces together: a bank with $818,241,000 in deposits was shuttered by withdrawing a mere $192,000. In other words, the firefighters withdrew 0.02% of total deposits, and closed the branch.

M&I has total deposits of about $24 billion, as of 30 June 2010. Doing the math, only $4.8 million (or $0.0048 billion) is required to be withdrawn in order to shut down the entire M&I system for a day — or two, or perhaps longer. If the bank should survive this, it will be in fear for its life: the institution will have been broken to the will of some its customers, and stripped of confidence in the eyes of the rest.

Total deposits in the entire USA banking system is about $5.2 trillion dollars. M&I Bank’s total deposits represents 0.46% of the total. A bank like, say, Wells Fargo has $719 billion in deposits; Bank of America has $829 billion; Citibank has $245 billion; and JP Morgan Chase has $829 billion. [update: source]

Adding it all up, those banks have $2.6 trillion in deposits, a hefty chunk of total deposits in the USA banking system. If $52 million dollars [EDIT: my math was off, corrected: 0.02% of $2.6 trillion is $52 million] were shifted away from these banks, in cash, and gradually deposited in responsible institutions like credit unions, the big banks would crumble. They are too vulnerable to be able to weather a storm such as that.

In other words, we have them exactly where we want them.

UPDATE:

The wide implications of what the firefighters discovered is very important, so let me explain the situation a bit more in depth.

As the video on the main page shows, banks make money by not having all their deposits in the bank. Money has to not be in the vault, in order for the bank to earn interest. This is called the fractional reserve.

In the post-Great Depression banking world of the USA, the reserve was ~2% of total deposits. This changed in the Alan Greenspan era, when “financial innovation” became the thing to do. What this really meant was ‘don’t worry, the Fed has your back’. It was called the Greenspan Put: if things got bad, the Fed would bail anything and everything out.

Within the US banking system, banks moves generally in lockstep with each other, in order to maintain a degree of balance and competitive position. So, one large bank’s fractional reserve is going to be generally representative of the entire system.

The reason why protesters have shown us the M&I Bank’s fractional reserve ratio is twofold, but straightforward. First, in private banks, each branch deals directly with the Federal Reserve for cash management. There is no central M&I vault filled with cash; each branch is entirely dependent on the Fed to manage on-hand cash. One M&I branch cannot call on another branch to ship over large quantities of money: all major money flow is to and from Fed banks.

Second, and this is really the more important part: banks do not close until they are out of money. Banks are so geared toward upward growth, that their internal monitoring does not understand contraction until it is at nearly catastrophic levels. So when the M&I branch on Capitol Square closed, it is because it was out of money, and has to wait for a Fed bank to ship them more cash in a shiny armoured car or three.

So, when one M&I branch has a fractional reserve of 0.02%, all of M&I has a similar fraction. Since M&I operates on 0.02% reserve, the entire US banking system is around 0.02% fractional reserves. If 0.02% of total deposits were pulled out of the system in cash, the banking system would seize up.

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