Although community banks make up the majority of banks in the United States, they might be an endangered species. Will these little institutions and the exchange traded fund (ETF) that tracks them go the way of the dodo bird?
Federal Reserve official Thomas Hoenig stated this week that “Too Big To Fail” banking institutions threaten the viability of community banks. Community banks are a cornerstone of local and regional economies – accounting for all but 83 banks in the United States – so it’s a threat that should be taken seriously, says the Huffington Post. Community banks are banks with less than $10 billion in assets. [How Financial Reform Could Affect ETFs.]
If these banks were to disappear, it would be a loss. Hoenig says they’ve held up well compared to the behemoth bank model and they have a far more vested interest in local economies. They have also done more lending – in the last year, they have increased total loans by 2% while big bank loans have decreased 6%. Business lending is stronger, too: for small banks, it declined 3%; for big ones, it fell 21%.
So, what is in the future of community banks? It’s up in the air. But Dory Rand for MarketPlace seems to agree with Hoenig: they’re important. They make small business loans and financing available to the middle class. These are generally areas that big banks are less willing to dabble in and may not even consider. [Look Under Financial ETFs Hood For Better Results.]
Rand also points out that a community bank is based in the community. People are comfortable going there. There’s more relationship-based banking. They know what the community needs are and they direct their products and services to meet those needs at an affordable, sustainable level.
Can community bank continue to thrive? It’s a wait-and-see moment, but for the long-term, the middle class needs these banks to thrive.
- First Trust NASDAQ ABA Community Bank (NASDAQ: QABA)
Tisha Guerrero contributed to this article.