Independent bank

What is an independent bank?

An independent bank is a locally owned commercial bank that is not affiliated with a multibank holding company. All of its funds flow in and out through the community in which it operates. Generally, independent banks are extremely knowledgeable about the markets in their areas. They often function to keep local cash safe and loan money to small businesses and startups. Independent banks are also called community banks.

Deeper definition

Both independent and national banks have their own specializations and advantages; national banks deal with banking operations on much larger scales and they must comply with the federal laws that regulate such operations. Independent banks, however, handle smaller-scale banking operations and comply with the state laws that regulate their actions.

Independent banks shine in the eyes of local business owners. Partnering with a larger national bank has the potential to put your investment money at risk; however, community banks have to function under tight legal restrictions that prevent any investments that could put your business money in danger. Another benefit of community banks lies in their history: Prosperous local banks first came into existence after the national bank failures that led to the Great Depression. These independent banks understood the value and importance of stable, local businesses. To this day, they continue to extend credit to local business with long working histories.

Naturally, the larger national banks will have less of a focus on smaller communities, despite what they advertise, and more of a focus on the federal agenda. National banks utilize more restrictions on small-business loans, as well. The scope of service that national banks can offer to small businesses is narrower and not as flexible as the scope of service they can typically offer larger companies.

Independent bank example

Independent banks do not have the large cash reserves that national banks do. As a result, they have to be selective when lending. These local banks tend to place their focus on small personal loans and home mortgage loans.

Other Banking Terms

Government-sponsored enterprise (GSE)

Government-sponsored enterprises help keep cash flowing. Bankrate explains.

Credit union

A credit union is a member-owned banking cooperative. Bankrate explains.

Non-sufficient funds (NSF)

Non-sufficient funds (NSF) is an error accountholders can avoid. Bankrate explains.

Jumbo CD

A jumbo CD is a safe way to earn money on your savings. Bankrate explains what it is.

More From Bankrate