While it may seem easy to identify the biggest banks in the country, determining what constitutes a community bank can be a more challenging task.
At the Federal Deposit Insurance Corp.'s Future of Community Banking Conference in February, the question took center stage. The FDIC is aiming to classify community banks on more than just their size. Historically, banks with assets worth less than $1 billion have been lumped into the community banking category. Now, the FDIC is heading toward a definition that may be able to include some larger institutions if they satisfy some additional requirements.
Rich Brown, the FDIC's chief economist, delivered a presentation that advocates a better conceptual definition of community banks that weighs factors such as the ratio of loans to assets, the ratio of core deposits to assets and the number of states with offices. Essentially, the $1 billion threshold will no longer be the strict cutoff. Additionally, some financial institutions below the $1 billion mark may actually not be placed in the community category.
Dodd-Frank has placed all the members of the banking industry under the microscope over the past few years, and it's no secret that community banks have faced the biggest challenges with escaping from the bank failure epidemic unscathed. However, Brown's presentation highlighted that small banks have been steadily disappearing for the past 25 years. Consider this statistic: In 1985, there were more than 13,000 banks with fewer than $100 million in assets. Today, that number has dwindled to just more than 2,600 banks.
Of course, not all of those banks failed. Many of them merged with other banks. Still, the playing field has slowly excluded smaller institutions from competing. Perhaps the FDIC's new efforts to analyze community banks and their impact on the economy will pave the way toward strengthening the smaller segment of the banking industry.
For everyday account holders, I don't expect any new definition to have a big impact on how you choose a bank. The public perception of community banks seems to include a few key characteristics: low fees, accessible loans and good customer service.
What does "community bank" mean to you?