I wonder how much of the decision was based on the urge to not do business with Chase vs. wanting a higher rate of return. I'd go further to hazard a guess that if Chase raised it's rate to better than 0.30% Buffalo would come running back. As would a lot of other people who say they hate banks but like returns on their savings.
I doubt it. Everyone knows that the TBTF banks are in a risky place right now. If Germany takes down Europe by not allowing liquidity in the banking sector, the entire financial edifice could collapse. Not saying it will, but it could. That would leave banks not sensitive to derivatives being the only safe banks.
First of all, I think that the nations will bail out the banks, and probably implement austerity. That will eventually either cause the banks to lend or the real economy to break down. But the dollar will survive in a deflationary scenario.
Another aspect of this is that Buffalo is right on the Canadian border. People here go back and forth over the Peace Bridge at will. As a result, we get a first hand comparison that much of the US doesn't get.