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Are community banks 'too small to succeed'?

An ATM at a community bank.

How many banks exist in America today? A lot fewer than any other time since the federal government started keeping track back in 1934, as The Wall Street Journal pointed out.  Based on the latest data from the Federal Deposit Insurance Corporation, as of September 30, 2013, there are 6,891 U.S. banks. That’s down from a peak of 18,000 banks a few decades ago. 

It's mostly smaller, local banks that have been disappearing since the mid ‘80s. They’ve consolidated, merged with bigger banks, or collapsed altogether. The result for the average American, says bank analyst Nancy Bush, is that “it's tougher to find the little bank on the corner that knows your name.”

That can make a difference for small business owners in particular, Bush says, since the smaller banks have traditionally been the ones that would “sit down with you, and look at the intricacies of the way you have to finance your small business. 

“I think there has been an impact on our economy as a result of this,” she says.

Record low interest rates have made it hard for smaller banks to earn revenue -- since they make most of their money through charging interest on loans. Another factor, Bush says, is “the steady ratcheting up of regulations in the banking industry, with more scrutiny, more paper work,” and ultimately, more costs to run a bank. 

Ironically, these regulations were largely meant to reign in the risk taking behavior of banks considered “too big to fail.” But those bigger banks can also handle new regulatory costs more easily. As one community banker told The Wall Street Journal, the question for the little guy now might be: can you be too small  to succeed?

About the author

Krissy Clark is the senior reporter for Marketplace’s Wealth & Poverty Desk.
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