Friday, November 28, 2014

How Banking Effects Norristown (and everywhere else)

I chose today's topic for a couple reasons. First, today is called Black Friday because it's the day that most determines whether retail businesses will finish the year "in the black"--that is, out of debt and making a profit--so the topic of money changing hands is appropriate. Second, somewhere in America today, it's a good bet someone will be watching "It's a Wonderful Life"--a great Christmas story, but also a story about banks.

So let's start by looking at Norristown's banking history.

For much of the borough's history there were 2 kinds of retail banks in town: National Banks, chartered under the Federal government, members of the Federal Reserve System; and Community Banks, which takes the funds of people who have savings accounts and invests in the community by giving loans to local businesses and developers. Savings and Loans (or Building and Loans as they were sometimes called) were similar to community banks, but their loans were mostly mortgages.

Norristown's boom times occurred pretty much between the mid-19th century and the 1970s (excluding the Great Depression and a few minor recessions) and it's no coincidence that for most of those years, the banks in town were mostly community banks or savings and loans. That is, the money local people saved was put right back into the community, and the profits made with that money mostly STAYED in the community, either as profits made by businesses, interest paid on the loans (which the banks shared with their depositors) or things like increased property values. Even the national banks in the area tended to invest locally. There wasn't much of a financial drain.

Up through the first years of the 1980s, I remember N-town having as many as 8 banks within its borders. 4 of them were downtown on Main Street. Savings accounts regularly earned around 5% interest.

Then deregulation happened in the 1980s. Big national banks began buying out community banks and each other to create huge financial mega-corporations. Yes, just like the evil Mr. Potter trying to take over Bailey Building and Loan in "It's a Wonderful Life." There are still a few community banks around now, like Penn Liberty, based in Wayne, but they're endangered species.

Now we have, I think, 3 banks left in town and they're all mega-corporations. Citizens Financial Group, Inc. is a British-owned American bank, headquartered in Providence, RI. Wells Fargo is an American multinational holding company, headquartered in San Francisco. PNC Corporation is the 5th largest  bank in America, headquartered in Pittsburgh. The best interest rate that any of my accounts earn is about 0.2% (National Penn in East Norriton). Most profits are kept by the banks to pay shareholders and top executive salaries. If our businesses take out loans at these banks, the interest they pay on those loans mostly leaves town, as do the profits collected for everything from minimum balance fines to bounced checks to ATM and safe deposit box fees.

Many developers who build in Norristown have found other sources of funding--direct taxpayer dollars--which they get from the state, county and borough. They raise some money through investors, but if you've ever been to Council meetings where one of them is seeking approval for a project, you more than likely heard words similar to "Sure, I can make the changes to the design you want, but I need another $150,000." I just heard one of these developers bragging about how Council will jump through hoops for her. Yes, we get a few more homeowners from some of these projects who then pay property taxes, but it takes at least a decade to get any real return on our investment and the projects haven't raised property values. When she comes back with another project, does she invest the profits from the last one? No, she asks for more public funding.

On the bright side, some of this public money is now available as small business loans. Some new ideas for financing our local businesses are being explored, like crowdfunding. But you can see how the evolution of the banking industry in the last 30 years has been a major factor in the economic downhill slide of Norristown and lots of other working class communities across the U.S. We need to come up with a lot more creative ways to keep money from being sucked out of our community.

Mr. Potter might have won for now, but as "It's A Wonderful Life" reminds us, good things can happen when a town comes together. 

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