The American landscape is dotted with community banks, a distinctly American institution. Although their assets are shrinking, they still constitute approximately 95% of all the American banks in existence, and although they hold less than a quarter of all the assets in the United States, they are responsible for nearly half of the small business loans that Americans rely on to fuel our economy. Members of community bank boards are representatives of the communities in which the banks are located, and have likely lived in those communities for generations. They are personally invested in the towns and the communities of which they are a part. For many community banks, maintaining their independence is of paramount importance.
America was on display at this year's convention of the Independent Community Bankers of America (ICBA). As in previous years, the general session began with the national anthem and the invocation. Shortly thereafter, Camden Fine, the president and CEO of the ICBA, delivered his keynote address, a powerful and passionate speech that relived the founding of the ICBA. Mr. Fine told the story of 28 community bankers in Minnesota who, during the Great Depression, kept the faith and retained their banks' independence despite the pressure to sell, and later went on to found the ICBA. His tone was optimistic, but he also solemnly acknowledged the sacrifices of those who are "no longer with us," who had fought for the day when community banks would make it through difficult times, especially during the last few years.
In fact, a palpable sense of mission and purpose permeated the sessions—along with an optimism and sense of opportunity that, by many members' accounts, had not been present for decades. There was a sense that finally someone was listening at the White House. In the estimation of many ICBA members, the next few years will present an opportunity to reduce the regulatory burden placed on community banks since the imposition of Dodd-Frank, and a more optimistic scenario in terms of commonsense regulation.
The Federal Deposit Insurance Corporation (FDIC) defines community banks as those that "have specialized knowledge of their local community and their customers [and] tend to base credit decisions on local knowledge and nonstandard data obtained through long-term relationships."1 According to FDIC statistics, over half of all banks are mid-size community banks with assets between $100 million and $1 billion.2 Despite their small size, they are mighty. Community banks not only provide almost one-half of small-business loans; they are responsible for more than 40% of farm loans, and more than one-third of commercial real estate loans.3
In its publications and public statements, the FDIC acknowledges that community banks are important to small businesses. However, as many community bankers state, actions speak louder than words. A steady increase in compliance costs has been imposed on community banks. They are forced to deal with regulations and policies in constant flux to address problems in which community banks were not participants. More, community banks face the danger that rules explicitly tailored to the largest banks might become viewed by examiners and supervisors as "best practices" without regard to whether they "fit" community banks.
The result has been disastrous. Since 2007, the number of community banks has dropped precipitously, hitting some states harder than others. California, Arizona, and Florida have all experienced deep drops in the number of community banks, as have Georgia, North Carolina, and South Carolina.4 In fact, every state in the union has experienced double-digit drops in the numbers of community banks, and the banks lost to consolidation or closures have numbered in the thousands.5 It goes without saying that this resulted in diminished economic activity throughout the nation, and fewer loans made to small businesses.
Although the White House appears to be attentive to the plight of our neighborhood banks, it remains to be seen whether Congress is maintaining the same level of interest. Frustrating politics have potentially delayed healthcare reform and tax reform, and now threaten to put regulatory reform for community banks and the small businesses that depend on them in peril. To be sure, financial institutions of all shapes and sizes are confused about the perceived lack of direction and leadership from both political parties on issues such as the new Fiduciary Rule legislation enacted by the Department of Labor and the Financial Choice Act. None of this helps to reduce the regulatory burden on badly strained community banks, which cuts to the core of thousands of communities throughout the United States. In other words, it remains to be seen whether much has changed in Washington.
Despite this uncertainty, the optimism at the ICBA convention was palpable, signaling that the nation's community banks have been through far worse times. The idea of remaining an independent community institution, a distant dream for many small banks, now seems to be a goal that is within reach. It is clear that community banks that include a merger or reorganization as part of their strategic plan want to see such options as a free choice, rather than as a necessity. In the months to come, eyes will be on Washington, in anticipation of the fulfillment of long-awaited promises.