Choosing a bank is one of the most important decisions consumers make because it has a measurable and lasting impact on the economy around us. The mere fact that the majority of wealth we accumulate during our lifetimes will be deposited in our bank, allowing the bank to make investments it sees fit, should give us all pause. If you choose to bank with a global bank, your deposits are invested in securities and activities that may have no bearing on you or your local community. The bank executives who make the decisions on how to use the earnings from your money, whether it be to pay management bonuses or to invest in sub-prime mortgages, will probably know little about you or your community. However, consumers who choose community banks are bringing their economic power to bear on their own local economy. According to Jeannine Jacokes, Chief Executive and Policy Advisor for the Community Development Bankers Association, "Community banks and community development banks, as the name implies, have a mandate to specifically serve and invest in their own community." As someone who has worked across all spectrums of the financial services industry over the past 14 years, in both global and community banking, I believe every citizen in every community has an obligation to support his/her community bank, and to make sure the bank fulfills its mission in their community.
Establishing a new banking relationship is no trivial task. We have to submit applications, provide picture IDs and fingerprints to bank salespeople, integrate our bank with our employer's payroll system, and regularly trust our bank to pay bills on our behalf through online banking. Since the effort required to establish a banking relationship creates a switching cost and disincentive to establish additional banking relationships, thereafter, we should each take the time to think about how and where we are going to bank. In no particular order, here are several factors consumers should consider when choosing a bank:
- Interest rates on deposit accounts (a good resource to determine competitive rates is bankrate.com)
- Competitive prices or no-fee banking services (for a list of local banks to compare, please see icba.org)
- Accessibility of its branches, ATMs, and banking resources (24 toll free call center, online banking, etc.) in places that you frequently travel
- Quality of customer service at the bank (personalized relationship management, demonstration of your value as a customer, etc., please see jdpower.com)
- Likelihood the bank will extend you a loan on competitive terms when you need capital (what type of loans do they offer, and to whom?)
- Safety of your money at the bank (please see relevant information at fdic.gov, and bauerfinancial.com)
Naturally, the different types of banks in a particular market each have strategies that appeal more to certain factors from the list above, and less to others. Rates and fees (1, 2, above) are influenced by the bank's balance sheet, whether global bank or community bank, and the economics of supply and demand. So, these items are not likely going to be consistent differentiators between community and global bank offerings. Global banks have a cost structure and macro scale that allows for extensive infrastructure and often makes them more convenient (3, above) than community banks in many cases. Community banks are usually focused on smaller markets, and are positioned to understand their micro markets better than a global bank could. This affords community banks the opportunity to offer superior customer relationship management and to develop and offer more relevant deposit and loan products (4, 5, above). In addition, a community bank might be in a better position to evaluate a borrower's creditworthiness when there are extenuating circumstances with a familiar customer. In some cases, bank officers may be personally familiar with a borrower's history, his community, and the economics of a deal that may mitigate bank risk. And finally, community banks have access to capital designated for specific economic development activity that global banks may not, like the 3% TARP funds for Small Business Lending the Treasury Department announced its plans to offer to banks with under $1 billion in assets.
As for the safety of consumer deposits (6, above), there are several misconceptions the public seems to be embracing. Contrary to popular belief, community banks and global banks offer the exact same FDIC insurance. So, consumer deposits are equally safe in either type (global or community bank) of FDIC-insured bank (currently up to $250,000 per depositor). Moreover, some community banks have the added benefit of being a part of the Certificate of Deposit Account Registry Service (CDARS) program, which actually allows an individual depositor to protect up to $50 million through the same FDIC insurance, while global banks can still only insure up to $250,000. Many consumers incorrectly believe that the global banks are Too Big To Fail (TBTF), and therefore their money is safer there. But, 2009 saw several TBTF global banks fail just as completely as banks fractions of their size.
So, considering the federal policies supporting community banks, and the predisposition of community banks to serve their own communities as their top priority, it makes sense for consumers to consider establishing more economically significant relationships with community banks as soon as possible. Banking relationships are not mutually exclusive, and smart, socially responsible consumers will position themselves to enjoy access to the advantages that both community and global banks can offer.
For more information about how you can support community banks, please contact Berdell Knowles, Jr. at berdell@ca.rr.com, or visit cdbanks.org.