Are Community Banks Dying?

The number of them is surely diminishing. Over the last seven years, one of every four community banks has disappeared. We have 1,971 fewer of these small, local financial institutions today than at the beginning of 2008. 

In terms of assets, the banking colossi certainly have improved their share. In 1995, they controlled 17 percent of all banking assets. Ten years later, it was 41 percent. Now, it's 59 percent. In the same time period, the share of community banks and credit unions has decreased from 27 percent to 11 percent.

A good part of the problem is the fed's favoritism to the big banks. This could be diminished if, as Senator Warren proposes, we break up the colossi. As it is, the feds seem to be more concerned with community banks failing, as they put the squeeze on local banks, scrutinizing their loans and demanding even higher levels of capital than existing regulations called for, while explicitly exempting megabanks from the same requirements.

Interestingly, local banks on the whole outperform their bigger competitors on several key measures of efficiency and profitability: they earn higher yields on their portfolios, have lower funding costs, and spend less on overhead. Plus, they are the ones financing local businesses and other productive investments that create jobs and improve our well-being.