The Incredible Shrinking Community Bank

December 3, 2013 at 7:31 am 1 comment

The Wall Street Journal reports this morning that community banks are slowly fading away. In an excellent analysis of the trend, the paper reports that the number of banking institutions in the U.S. has dwindled to its lowest level since at least the Great Depression. The number of banks has now shrunk to 6,891 and with the exception of one brave — or some may argue, delusioned — group of investors, no one is applying to form new community banks these days.

I’m not highlighting these statistics to disparage community banks. Rather, I’m posting them because the trend highlighted by the article is so similar to that taking place in the credit union industry. For instance, the decline in bank numbers from their peak of 18,000 “has come almost entirely in the form of exits by banks with less than $100 million in assets. . . with the bulk occurring as a result of mergers, consolidations or failures.”

The credit union industry has long recognized that the small institution is fading away. The trend is impossible to miss. But it is one thing to spot a trend, it’s quite another to come to a consensus about what, if anything, to do about it.

Simply put, how much should the industry really care that small credit unions are fading away? I argued in a recent blog for CU Insight (shameless plug) that the decreasing number of credit unions is, in part, a reflection of regulatory overkill. But, the regulatory burden is growing and likely to continue to do so. Only large and growing credit unions are going to have the economy of scale necessary to absorb these costs.

The Wall Street Journal also notes that small banks are the most sensitive to interest rate squeezes. Again, I certainly sympathize with smaller institutions, but unless the economy makes a miraculous recovery, banking margins are going to be squeezed well into the future.

This raises one more question. Is there something that small institutions provide that larger institutions, be they credit unions or banks, simply won’t? Increasingly, I believe the answer is yes, but consumers are unwilling to pay for the better service or home-town feel that can only come from smaller institutions. To me, if I have to choose between a teller’s friendly smile and a convenient online bill payment, I’ll take convenience, especially if I haven’t had my second cup of coffee.

One more thought, with all the hurdles facing both community banks and credit unions, why in God’s name do banks waste so much of their lobbying time trying to destroy credit unions? Looking at these numbers, any community banker who believes that the key to the survival of this industry lies in altering the tax status of credit unions is about as misguided as White House officials extolling the virtues of their improved health care website. There’s so much more that needs to be done. . .

. . .Yesterday evening, the Moreland Commission begun by Governor Cuomo in July to investigate political corruption in the Empire State released a preliminary report. The executive summary recommends various campaign finance reforms, but also takes pains to stress that investigations of political corruption including possible allegations of criminal wrongdoing are ongoing.

Entry filed under: Advocacy, General, New York State, Political, Regulatory. Tags: , , , , , .

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Authored By:

Henry Meier, Esq., Associate General Counsel, Credit Union Association of New York

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