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The Importance of Community Banks to the U.S. Financial System and Economy

- Monday, October 23, 2017

SOURCE: Remarks by Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation

On October 23, 2017 the FDIC Chairman, Martin J Gruenberg, spoke at the “Day With the Secretary” Event hosted by the Illinois Department of Financial and Professional Regulation’s Division of Banking and the Conference of State Bank Supervisors in Springfield, IL.

Mr. Gruenberg began by stating, “Community banks have always carried out the banking core functions: gathering core deposits and making loans to individuals and small businesses. But unlike larger noncommunity banks, community banks have the local focus to give the detailed attention critical to the small business sector.”

We have extrapolated some of the most important statements of the chairman’s remarks below.

“…traditional community banks remain vitally important to our financial system and our economy.”
“Community banks hold 43 percent of all small loans to businesses and farms in the United States – more than three times their 13 percent share of industry assets.”
“The median age of community banks is 94 years, compared to 39 years for noncommunity banks.”
“…the median asset size of community banks has more than quadrupled since 1985, from $40 million to more than $170 million.”
“Amid all of the institutional and technological changes we have seen during the past 30 years, community banks remain the single-most important source of credit for small businesses and of banking services in general to non-metro areas.“
“Despite the rise of new competitors and the long-term consolidation in banking, no single competitor has emerged that can replicate or replace the mix of services that community banks provide.”
Total loans and leases held by community banks have grown by more than 8 percent in each of the past three years — extending to many segments of the loan portfolio. This growth has exceeded the pace of nominal growth in the U.S. economy.
In each of the past four years, community bank loans have grown faster than loans held at noncommunity banks in: 1- to 4-family mortgages, commercial real estate loans, and commercial and industrial loans.
In each of the past three years, annual growth in community bank net income has equaled or exceeded growth at noncommunity banks.
Net interest income is the foundation of community bank profitability. It has traditionally accounted for around 80 percent of net operating income for community banks, versus two-thirds at noncommunity banks. But the net interest margin for community banks today is lower than it was prior to the crisis. This decline in net interest margin has progressed over time as the period of zero or near zero interest rates has persisted. It far exceeds any other factor in holding back a full recovery in community bank profitability in the post-crisis period. No other factor comes close.
While community banks largely have recovered from the crisis and are exhibiting solid financial performance, there are challenges ahead. Among the more important challenges are: (1) The costs of regulatory compliance; (2) Responding effectively to changes in information technology; and (3) Managing succession planning and recruitment.
The federal banking agencies are currently following through on burden-reduction commitments made in the FDIC’s report to Congress earlier this year pursuant to the Economic Growth and Regulatory Paperwork Reduction Act. These actions include expanding the asset threshold for eligibility for the 18-month examination cycle, reducing the content required in quarterly Call Reports, increasing appraisal thresholds, and simplifying small bank capital rules. We have already taken steps in each of these areas to reduce burden, and we are working to do more.
Their role is inextricably connected to the small business sector where most new jobs are created. And community banks have been essential in providing banking services to local communities that often are not served by larger banks or non-bank financial institutions.
The strong post-crisis performance of community banks underscores their vitality and the critically important role that they play and will continue to play in the financial system and economy of the United States.

You may read the entire speech here: The Importance of Community Banks to the U.S. Financial System and Economy

House of Representatives Pass The Financial CHOICE Act

- Friday, June 09, 2017

The House of Representatives passed the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs) Act Thursday, a bill that significantly chips away at about 40 provisions and regulations put in place via Dodd-Frank during the Obama-era.

When the Dodd-Frank Act was enacted, it was sold to the American people as a solution to the financial crisis that would hold Wall Street banks and bad actors in the financial services arena accountable.

In the years since its enactment, however, big banks have grown larger, and small banks and credit unions across the country have suffered. In fact, community financial institutions are disappearing at an average rate of one per day (1,600+ which have either closed or been forced to merge since the implementation of Dodd-Frank). This is because the large Wall Street banks are the only ones with the manpower and resources to navigate the complex Dodd-Frank regulatory environment.

The Financial CHOICE Act, provides desperately needed relief to community financial institutions from the harmful, complex and excessive regulatory environment created by the Dodd-Frank Act. It increases access to, and reduces the cost of, credit for families that want to purchase a home or start a business.


Regulatory relief would alleviate the burdens on lending to small businesses, which account for 70 percent of all new jobs created in the US.


When institutions begin to flourish and thrive again, lower-income and middle-class consumers, as well as small businesses, that rely on the services of community banks will once again have more choices and better access to the products and services they need to live their daily lives and conduct their businesses.

The legislation passed the House by a vote of 233 to 186. CHOICE would end Dodd-Frank’s too-big-to-fail bailouts for financial firms and creditors, deliver stronger consumer-fraud protections for all Americans, and provide much-needed regulatory relief to community banks and other small financial institutions. The CHOICE Act will be sent to the Senate next, where the path to approval could prove more difficult.

Small-bank specialties on the rise

- Wednesday, February 08, 2017

small bank specialties on the rise by american banker

Source : American Banker

American Banker recently published a slide show on five ancillary business lines that lately have appealed to community banks pursuing new sources of loans or fee income. The five are:

  1. Equipment Finance
  2. Public Finance
  3. Insurance-Premium Finance
  4. Senior Care Construction Loans
  5. SBA Lending

View the slideshow here

A Surprising Obstacle in Small Biz Lending...Fax Machines

- Tuesday, December 13, 2016

By Trevor Dryer | November 21, 2016

No movie scene conveys society's frustration with old-school office hardware better than the famous one in "Office Space" — in which a group of disgruntled co-workers destroy their company's fickle printer with baseball bats.

These days, bankers may feel similarly about their fax machine, a relic that predates the digital age but is still making loan processing difficult.

Fax machine use has declined to the point where many offices no longer have them at all. Electronic communications are infinitely faster and more efficient. However, one diehard fan of faxed communication still exists. It will surprise no one to hear that that holdout is the Internal Revenue Service.

This preference isn't merely inconvenient and out-of-step with modern business practices. When the IRS documents are transmitted via fax, it slows down lending to a degree that may threaten small business' livelihood. It also introduces an unfair advantage to unregulated digital marketplace lenders, who aren't bound by the same antiquated rules and therefore can act with greater speed. The result? An unequal playing field among lenders, higher lending costs for small businesses and a competitive landscape that doesn't operate as efficiently as it could. All because of the lowly fax machine...

Read the entire article here

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