Are community banks ‘too small to succeed’?

Krissy Clark Dec 3, 2013
HTML EMBED:
COPY

Are community banks ‘too small to succeed’?

Krissy Clark Dec 3, 2013
HTML EMBED:
COPY

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?

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.