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The future of community banks

By David McMillin ·
Monday, December 24, 2012
Posted: 6 am ET

In an environment dominated by discussions of too-big-to-fail financial institutions, the Federal Deposit Insurance Corp. has been busy researching the other side of the banking industry. Over the past year, regulators have been looking ahead to see what the future holds for community banks.

This week, the FDIC announced the findings of the Community Banking Initiative, and the report documents the steady decline in the number of small banks in America. In 1984, there were almost 18,000 FDIC-insured banks. Today, that number stands at less than 7,500.

The city vs. the county

While big banks dominate big cities, the FDIC's findings indicate that community bankers play a major role in the rural areas of the U.S.

"The study shows that community banks hold the majority of deposits in U.S. rural and micropolitan counties, and that there are more than 600 counties -- or almost 1 out of every 5 U.S. counties -- that have no other physical banking offices except those operated by community banks," the FDIC writes.

However, those numbers can be deceiving. The report continues to highlight that while small banks help small towns, those towns are shrinking, and so are the opportunities to turn a profit. Over the past 30 years, half of rural counties lost population. If account holders are leaving, where will community banks turn for more business?

Exit plans

According to summaries of the roundtable discussions, it appears that some of them may not turn anywhere at all. In conversations across the country with community bankers, state banking commissioners and regulators, participants indicated that they expect to see more consolidation in the industry due to "an increasing number of bankers who will decide to leave the industry."

Only time will tell what the future holds for small banks, but there is one big pressing issue ahead -- credit union lending. As credit unions continue to lobby for expanded lending powers, community bankers are concerned about increasing competition from the nation's not-for-profit credit unions.

What do you think the road ahead will look like for community banks? Can they continue to thrive in today's banking climate? Or will more of them close their doors?

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Concerned American
December 29, 2012 at 5:27 pm

The number of community banks will continue to go down because the cost of regulation will keep them from growing beyond a certain point thanks to Dodd-Frank. It's already happening - smaller banks selling to bigger banks, which have the economies of scale to deal with ever-increasing regulations.

Robert Reed
December 24, 2012 at 8:06 pm

can you say CREDIT UNION.... Phuuk corporate bankers and their ilk.

charles wood
December 24, 2012 at 7:10 pm


devin lightcloud
December 24, 2012 at 7:06 pm

Always keep my money in jars buried in the ground. Banks don't pay enough interest to spit on, and they have the gall to charge me to use my money!!-Let your balance drop below a certain amount fees-monthly service fees-etc.-I do go to banks to get free ink pens (insurance companies too),so I reckon they serve a VERY small useful purpose in my world.

Christopher Bowman
December 24, 2012 at 4:15 pm

The number of banks in the U.S. will continue to decrease, I believe. I can't wait for Christ's return, when banks will no longer be needed! Praise the Lord!