Discussion - Can Community Banks Survive and Thrive and Would You Give Them Your Money?
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Discussion - Can Community Banks Survive and Thrive and Would You Give Them Your Money?

There are over 7,000 community banks (assets below $10 billion) in the country and over 7,000 credit unions, yet over 400 community banks have closed in the past three years. Can community banks survive and thrive in the future?

The New York Times ran a nice article today by Alan Feaur entitled The Bank Around the Corner. The article does an It's A Wonderful Life-like profile on the Bank of Cattaraugus. Mr. Feaur writes:

“They do things that big banks won’t do,” said Paul Macakanja, the owner of the Jenny Lee diner, which sits on Main Street facing Mr. Cullen’s bank. The diner has no photocopier, and tellers at the bank, he said, will run off copies of his menu, free of charge. “They support you personally,” he added, “because your success is their success.”

The article also discusses how the President of the bank, Patrick Cullen approved an $85,000 loan to an Amish man who only earned $2,400 per year.

“If you know Amish culture, you know his sons work and that everything they earn goes to him until they’re 21 or married,” Mr. Cullen said, observing that the man had eight sons, each earning at least $10 an hour. “So he was fine, but none of that shows up on a credit score.”

There are over 7,000 community banks (assets below $10 billion) in the country and over 7,000 credit unions, yet over 400 community banks have closed in the past three years. BestCashCow data shows that smaller, community based banks tend to offer some of the best rates on deposit and loan products. Community banks also offer more personalized service and as the article illustrates, some of them go to extraordinary lengths to help their community. The Bank of Cattargus is not interested in earning a profit or expanding. As long as President Cullen is able to pay his employees, and his rent, he is happy.

Is this sustainable? From a financial perspective, the bank looks sound. Its Texas Ratio, while rising, is still below the industry norm. The bank has a low return on equity, but it isn't interested in making money. Deposits have grown over the past five years while loans have dipped. So financially, the business model looks stable as long as there is someone to run the bank.

In the wake of the financial crisis and problems at some of the mega-banks, movements have sprung up to convince consumers to go local with their banking. BankTransferDay.org is trying to convince individuals to switch their money from big banks to credit unions. Arianna Huffington's BankTransferDay.org project encourages people to move their money from the big banks to local community institutions. Whether these are long-lasting trends or just a short-term reaction to the financial crisis remains to be seen. The reality is, it's hard to get people to switch banks. The larger banks have grown by gobbling up smaller ones and "assimilating" their customers. While community banks are closing or being acquired every year, new banks are also starting. In fact, the fastest growing banks in the United States are all community banks.

There are drawbacks to community banks. Many don't operate extensive websites or have large ATM networks. Their operations can be slow. I doubt Cattaraugus will be offering mobile banking anytime soon. But for the consumers in their local area, that's probably okay.

Do you bank at a community bank? If so, why? If not, why not? Do community banks have a chance to survive or are mega-banks and Internet banks the wave of the future? Is there room for both? Let us know what you think.

See a map of all banks (large, medium, and community) in your neighborhood.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee


  • Mayline

    December 23, 2011

    I love my local bank. Service is wonderful, rates good, and I enjoy walking in. That being said, I also have an online savings account :). Happy Holidays!

  • Penny Saver

    December 23, 2011

    I use a big bank, Bank of America. I used to work their so that's how I got my account. I haven't had the energy to switch and since I also have a mortgage with them, don't pay any fees. I think the concept of local banking is a great one and I support keeping money in the community - kind've like buying local produce. The hard part is getting people to care enough to switch. Local banks need to come up with a value proposition which is attractive enough to get people of their behinds.

  • David

    December 23, 2011

    Internet banks all the way.

  • Vocel

    December 28, 2011

    Love my local bank. It's like the local bar at the street corner - well not quite but you get the point. I can walk down there and see someone I know. I know the people who are taking care of my money and if I need a loan they will use more than a few numbers to determine whether or not to give. I think there is something to this and hope these banks continue to survive and thrive.

  • Stephen Roach

    December 28, 2011

    Community banks definitely have a niche. They can't compete on technology but can offer more personal service, higher rates, and lower fees. In this way, they can capture customers who don't need an ATM on every corner.

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