Last week, the “Move Your Money” campaign seemed to hit a fever pitch online, as our sister blog EconomyBeat.org reported. Starting with The Huffington Post and moving onto Twitter and Facebook, as well as various blogs, people were urging their friends to move their money into community banks, and out of the large banks that received TARP funding, in order to support Main Street over Wall Street.

This week, Seattle NPR station KUOW invited experts to respond to the Huffington Post-promoted idea, including Checkbook.org President Robert Krugoff and Rob Johnson, director of the Financial Reform Initiative.

President Obama’s small business legislation may help the Move Your Money cause, as this NewsHour report from just before Christmas found.

U.S. PRESIDENT BARACK OBAMA: I think it’s fair to say that most of these community banks were not engaged in some of the hugely risky activities that helped to precipitate the financial crisis.
JUDY WOODRUFF: To ease that crisis, the administration plans to pump $30 billion into a new small business lending program. And the Fed has tried to help by holding interest rates at practically zero.

Not everyone thinks moving to smaller banks is a good idea. The Atlantic’s Derek Thompson (who wrote in support of a bank tax on big banks to boost smaller ones) spoke to an unnamed finance expert in a blog post. The expert, whom Thompson calls “Dr. Gonzo” responds:

But I definitely think the small is better thing is pretty unfounded and runs contrary to common sense, specifically considering diversification. I mean, 2008 was all about market risk and assets hitting the floor at the same time. But just because diversification didn’t work as well as it should, doesn’t mean that it’s not useful. … The small bank thing is definitely fetishized, and IMHO, not based in any objective theory or evidence. It’s just an aesthetic people like to cling to.

For more background on how local bank franchises failed, Nightly Business Report in September looked at the community bank crisis.