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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