Why Local Money

Local deposits and investments keep dollars circulating in the local economy and help local businesses prosper by providing them with a source of financing.

In the 20th century, public policy and emerging markets shifted much of this capital away from local communities. But today, the Great Recession has led many of us to re-evaluate the wisdom of Wall Street-dominated capital markets and faraway banks—using other people’s money, Wall Street prioritized speculation over productive investment while Main Street fell into decline and an excessive centralization of capital distorted our democracy.

Thinking local first offers an alternative and decentralized system of saving and investing that allows us to diversify our portfolios while better aligning the needs of our community with our economy. Slow Money provides a great national example of how even a small shift can have a big impact—they ask, how would our landscape and economy look different if we invested just 1 percent of our assets within 50 miles of home? 

The Benefits: Similar to Buy Local campaigns, local deposits and investments are a tool to support local independent businesses and foster vibrant, sustainable communities. Additionally, a growing body of evidence also demonstrates that decentralized, local-based economies have a smaller impact on the environment than more centralized economies based on large-scale enterprise. For individuals, community capital also offers the promise of more purposeful investing, providing greater transparency and autonomy, and more tangible returns on your money.

Investing: While entrepreneurs are currently only allowed to raise money from people they know, not the general public, many groups across the country are exploring new ways to enable citizens to directly invest in local businesses. LION, the No Small Potatoes Investment Club, The Carrot Project, and Slow Money Chapters are examples of initiatives that aim to facilitate direct local investment. The emerging interest in local investment is chronicled in books such as “Local Dollars, Local Sense” by Michael Shuman, “Inquiries into the Nature of Slow Money” by Woody Tasch, and “Locavesting: The Revolution in Local Investing and How to Profit From It” by Amy Cortese.

Banking: Small banks lend a much larger percentage of their assets to small, locally-based businesses than do large banks; recent FDIC estimates show that 56 percent of the assets of small banks are invested in small businesses compared to 18 percent of assets for large banks. So in the same way that you can support your local living economy by buying local, you can also strengthen your community by moving deposits from large banks to local banks. It’s a simple yet powerful way to engage in local investment.

The Move Your Money campaign, the New Rules Project’s Community Banking Initiative, and other Bank Local campaigns in places such as Portland, Ore., Sonoma County, and Cambridge, Mass., are examples of the growing numbers of initiatives designed to move money to local banks.

Top Five Reasons to Choose a Community Bank or Credit Union

1. Get the same services at lower cost: Most locally owned banks and credit unions offer the same array of services, from online bill paying to debit and credit cards, at much lower cost than big banks. Average fees at small banks and credit unions are substantially lower than at big banks.
2. Put your money to work growing your local economy: Small businesses, which create the majority of new jobs, depend heavily on small, local banks for financing. Small and mid-sized banks control less than one-quarter of all bank assets, yet account for more than half of all small business lending.
3. Keep decision-making local: At local banks and credit unions, loan approvals and other key decisions are made locally by people who live in the community, have face-to-face relationships with their customers, and understand local needs.
4. Back institutions that share a commitment to your community: The fortunes of local banks and credit unions are intimately tied to the fortunes of their local communities. The more the community prospers, the more the local bank benefits.
5. Support productive investment, not gambling: The primary activity of almost all small banks and credit unions is to turn deposits into loans and other productive investments. Meanwhile, big banks devote a sizeable share of their resources to speculative trading and other Wall Street bets that may generate big profits for the bank, but provide little economic or social value for the rest of us and can put the entire financial system at risk if they go band.

Source: Community Banking Initiative of the New Rules Project. Visit newrules.org//banking for more information and resources.