Given the consolidation of banks and the heightened regulatory and compliance environment since the recession, it is natural to ask if community banks can still compete in the industry today.
Some experts believe that all banks will eventually be consolidated into 10 of the world’s largest banks. One of the main reasons for this school of thought is that the regulatory compliance burden has become more expensive, which some community banks may not be able to afford.
As a principal founder and operator of a community bank over the past 10 years, I can tell you that it has definitely become more cumbersome and expensive to operate a bank in recent years, but it is still feasible and affordable for a small community bank to compete. However, the size of a small bank to become profitable has increased from $50 million in assets to around $100 million in assets. Since 2008, the number of community banks has consolidated from approximately 8,000 to 6,000. However, the entire net decline has come from banks under $100 million in assets, which means that the larger community banks are surviving just fine.
Many of the post-recession regulatory requirements are targeted toward banks that are over $1 billion in assets and do not have the same effect on community banks. The regulatory agencies, in their wisdom, knew that most of the banking industry issues were at the Wall Street level as opposed to the Main Street level. The regulators understand that community banks are vital to our industry. In recent years, community banks made 33 percent of all small-business loans, even though they only control 8 percent of our nation’s banking assets. The economic recovery occurs at the grass roots of Main Street, not at the ivory towers of Wall Street.
Community banks have a growth cycle that mirrors other industries. We have to remember that Bank of America, Wells Fargo, Apple, IBM, Wal-Mart and the like all started as small businesses. There will always be room for a well-run community bank because community banks are the source of liquidity and capital in the early- to mid-stages of the growth cycle.
As I visit with small-business owners who we helped through the recessionary years, I hear a common theme. They would not have survived without the financial support of their community bankers. Most of these small businesses experienced losses during the recession and would not have qualified for a loan at a large bank. It was the community bankers who knew these business owners well enough to make them a loan when their business really needed it. That takes a personal relationship with your customer and local decision authority.
In my 30-plus years of banking in Southern Nevada, I have seen the rise and the fall of the local community banking industry. Two main community banks dominated the industry from the 1960s to the 1980s, the original Valley Bank of Nevada and First National Bank/First Interstate Bank. In the early 1990s, these banks were bought out by Bank of America and Wells Fargo, respectively. This spurred the advent of more than two dozen new community banks. Some of these community banks have now become large regional banks, with assets of more than $10 billion. Since 2008, most of the remaining community banks were consolidated into larger regional banks, which left only a few locally owned and operated community banks in the Las Vegas Valley.
We are entering a new cycle for community banks in Southern Nevada. As the economy recovers and businesses seek new capital for expansion, they are going to call their community banker. This will spur considerable growth among the remaining community banks, and the cycle will continue.
In summary, community banks are the primary source of lending for small businesses. They are made up of local citizens who want to improve the economic living conditions where they reside, which gives them the unique competitive advantage of having personalized service and local decision making.
Can community banks compete today? Absolutely! We have always found a way to meet the needs of the businesses and households of the communities that we serve, and we always will.
James York is the founding principal of Valley Bank of Nevada and serves as its president and CEO. He possesses an extensive background in the banking industry and has served in executive and senior management positions at various banks in the Las Vegas market for more than 30 years.