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Community Banks Are Special

By: Bill Poquette

A year-long program of outreach and engagement by the FDIC with community bankers across the country, along with additional research and analysis, have resulted in a revealing and comprehensive community banking study and some welcome supervisory initiatives.

As of 2011, community banks made up 92 percent of insured banks and 95 percent of U.S. banking organizations, the FDIC found. They hold the majority of deposits in rural and micropolitan counties. More than 600 counties, or almost one of every five counties, have no other physical banking offices. They hold 14 percent of the banking industry’s assets, but 46 percent of small loans to farms and businesses.

The agency’s research revealed that community banks have earned a lower average pre-tax return on assets than non-community banks over the past 15 years; most community banks in most periods have been profitable. Several supervisory initiatives have evolved from the FDIC’s roundtables with bankers and examiners over the past year. Among those highlighted with the release of the community banking study are improvements in the pre-examination process, enhanced communication during the exam process and outside the exam process, better understanding of new regulations, clarification of rule applicability, and technical assistance with complex subjects of interest.

FDIC Chairman Martin Gruenberg emphasized that the outreach and engagement effort with community banks will be ongoing. “We will continue to look for other opportunities to enhance our research and analysis as well as identify further steps to improve the examination and rulemaking process for community banks, while maintaining our supervisory standards.”

Recent studies at the Federal Reserve Bank of Kansas City produced findings similar to those of the FDIC. At a community banking conference there last fall, Esther George, the bank’s president and CEO, pointed out the commonly noted strength of community banks in that they have close relationships with and detailed knowledge of their customers. “While many now claim that the value of customer relationships is declining with credit scoring and credit risk models,” she said, “a recent study at our bank found that there is real value in relationship lending and in the soft personal information on customers that community bankers typically have.”

History has shown that well-managed and innovative community banks are well-positioned to handle the challenges of the future and to take advantage of new opportunities, George pointed out. “The new regulatory challenges, though, may be a different type of battle,” she said. “I have been involved in discussions to encourage regulators to take steps to ensure that community banks are not put at a disadvantage by laws and rules meant to fix problems that do not exist in community banks.”

All of this confirms what BankNews readers already know: Community banks are special. Regulators have known this as well, but the evidence suggests they have not done enough to recognize the unique and vital role of community banks with policies that aid and abet their mission, rather than thwart it. These new studies are encouraging. Hopefully their momentum will carry the process forward with vigor.

Bill Poquette is editor-in-chief of BankNews.

Copyright (c) January 2013 by BankNews Media