By Mark L. Luderman
Community banks play a significant role in our financial system. There are 7,000 community banks throughout the United States, nine of which are located in Western New York. But today, community banking faces serious challenges due to the new regulations for the banking industry.
Community banks are totally different animals from Wall Street mega banks. We did not contribute in any way to the financial crisis, but from the start maintained the banking industry’s highest capital levels while focusing on the unique needs of our customers. The new laws, however, are a one-size-fits-all approach imposing more complex regulations for our compliance departments and complicated standards for calculating risk, and applying the same capitalization formulas as those for mega banks.
We call ourselves Main Street banks because we were established on the Main Streets of small towns all over America. We developed our niche on Main Street and we’ve grown on Main Street – gaining market share in two-thirds of rural markets and nearly half of urban markets right through the recent crisis. In the rural communities that put food on your table, community banks have historically provided the majority of loans and financial services.
Just as small business is the cornerstone of the U.S. economy, community banks are the cornerstone of small business lending. Community banks, typically with assets of less than $10 million, make 60 percent of loans valued between $100,000 and $1 million. Though the remaining 40 percent of these loans are held by large banks, small business lending is only 5 percent of their total lending. That tells you how important small business is to community banks – and how unimportant it is to big banks.
Community banks are the original “relationship” bankers. We know our customers beyond their credit scores, financial statements and the other measures used by big banks. Because of these relationships, community banks lend more responsibly and incur lower credit losses. Federal Reserve Bank economists have said in spite of the economic hardships of the past five years, the community bank business model is thriving – unlike those “too-big-to-fail” banks that required government bailouts to stay afloat.
The new laws will negatively affect our industry and, given the critical role we play, could create a banking crisis of its own. Community banks offer the public an alternative to the huge banking conglomerates, which hold the best interests of their shareholders to heart, not the best interests of their customers. We have a track record of reinvesting in the communities in which we do business. Limiting the resources we have to reinvest is a threat, not just to community banking, but to the recovery of the U.S. economy.
Mark L. Luderman is president of the Bank of Holland and a member of the Independent Bankers Association.