On October 23, FDIC Chairman Martin Gruenberg addressed bankers and regulators at the “Day with the Secretary,” hosted by the Illinois Department of Financial and Professional Regulation and the Conference of State Bank Supervisors, in Springfield, Ill. Following is a brief portion of Gruenberg’s comments on the importance of community banks to the U.S. financial system and economy.
FDIC researchers developed a definition for ‘community bank’ that is not strictly based on asset size. Our definition relies on three key, common-sense characteristics of a community bank: careful relationship lending, stable core deposits, and a local geographic area of business that the bank understands well.
At the end of 2016, 92 percent of FDIC-insured institutions met this definition.
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.
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. And they serve markets that tend to be neglected by larger noncommunity banks.
As of 2014, community banks held more than three-quarters of total deposits in 1,244 counties, or about 40 percent of all U.S. counties. In around half of those counties, the only FDIC-insured institutions operating a physical office are community banks.
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.
As part of our community bank research, we have been able to measure the overall progress community banks have made during the post-crisis period in terms of credit quality, loan growth, income growth, and profitability.
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.
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.
I assure you that the future of community banks will continue to be a top priority for the FDIC.
A full copy of Gruenberg’s remarks can be found here: http://bit.ly/FDICCSBS.