Below is the introduction of the report. Read the full report here.
INTRODUCTION: Community Banks’ Indispensable Role
Community banks are vital to Main Street Americans, enabling many to achieve their goals and dreams. It is not an exaggeration to say that they are the lifeblood and beating heart of thousands of communities across America, not only by providing loans but also in supporting innumerable civic activities. Their role in communities – from coast to coast and from red state to blue state – drives broad-based growth within the real economy. That’s because they are hyper-focused on local communities with a core mission of simply serving the financial needs of those communities.
From safeguarding the savings of families and small businesses to providing the loans necessary to facilitate wealth creation, community banks have fulfilled their core mission dependably throughout history. With ever-widening income and wealth gaps (), supporting small businesses and family wealth creation at the community level are more vital now than ever. That means anyone serious about an economy that lifts up all Americans must be serious about strengthening community banks.
By design the success of community banks is entirely dependent on the success of the communities they serve, as opposed to larger banks that can – and do – close branches and move elsewhere, based on profitability for the remote corporate parent rather than the needs of the community. The community bank “relationship banking” model relies on local knowledge for providing loans to households and businesses, often with minimal financial histories – loans that larger banks would ignore. And they are able to do this while also minimizing bank risk compared to larger banks, which means fewer defaults and more money available to be invested locally, especially during economic downturns.
Because of this, community banks are the foundation of economic growth and stability for many communities. Their unique model creates a virtuous feedback loop whereby deposits at community banks are invested as loans to local families and small businesses, resulting in local growth being boosted and wealth being created. That wealth is then deposited back into community banks – and the cycle repeats, further supporting local economic growth.
What is most remarkable is that community banks do all this even though they are at a disadvantage. There is an unlevel playing field due to policies that benefit the largest banks and fail to appropriately support the critical mission of community banks, leaving them struggling to keep up. That is why the assets of community banks as a whole have not grown in decades (see Figure 2), whereas the very largest banks have grown tremendously, resulting in less broad-based economic prosperity and more wealth and income concentration.
Policies must be changed to ensure that the disadvantages community banks face are addressed by appropriately recognizing their size and unique business model as well as their special role in our communities and the economy. Carefully designed policies will allow community banks to sustain and grow their vital services and market share. This would provide a meaningful and significant win for communities throughout the country that are struggling to keep up with the growing wealth and income disparities and rising costs of day-to-day living.
Read the rest of the report here.
