Changes in the World of Small Community Banks

Community banks hold a traditional position in financial intermediation. These provide banking services to customers, consumers and small businesses, all within “local” proximity to the bank. They’re also more likely to be privately owned than much larger banks. Local ownership provides a strong incentive to management to balance stakeholder concerns relative to the demands of capital markets. Community banks are categorized, based on asset size, by the Federal Deposit Insurance Corporation as having $10 billion, or less, in assets. Small community banks, those with $1 billion or less in assets, are most likely to retain the original community bank conceptual rationale of relationship banking. Larger pools of depositors or greater numbers of branch locations tend to dissipate the informational advantages of the local geography served by the community bank. Community banks are often found in areas that are underserved by traditional financial service organizations. The realization of this rationale in the banking market makes small community banks the most common size of bank within the industry; approximately 90 percent of U.S. community banks fit this description today