Understanding what Community Bank is all about is our topic of discussion today in this article. If you’re not sure what a community bank is and you’re curious to know more. I’ll explain it in layman’s language so that you can understand perfectly what the community bank is and how it operates.
Without wasting much time, let us dive straight into today’s topic of discussion.
What Is a Community Bank?
According To Investopedia. Community banks are smaller banks that serve as depository or lending institutions that primarily serve small businesses or individuals in very small geographical locations or areas. These banks are known for building a personal relationships with their customers as a means of serving them.
The community banks don’t have special products range or branch networks like that of the larger banks. They try to serve the people in that geographical location by ensuring that they provide their customers with loans to help improve their local businesses most especially those who are not qualified to get a loan from the bigger banks due to their lending criteria or requirements for securing a loan.
One thing the community bank is known for is the relationship aspect of the bank and its customers. The bank tends to emphasize relationships and even family histories when making lending decisions, whereas larger banks rely more on credit scores, income, and other quantitative data.
Understanding What Community Bank Does
Some finance scholars will tell you that the community bank has no universal definition, but one thing is certain, the function of the bank.
The bank has a limited number of branches that primarily serve local businesses and individuals who live nearby.
According to Investopedia. Different legislators have sought to outline what is the community bank and what is not. As of 2018, congress passed what is called the Economic Growth, Regulatory Relief and Consumer Protection Act, which defined “community banks” as those with less than $10 billion in consolidated assets, a leverage ratio of greater than 9 per cent, and other criteria.
As time passes by, using the American currency to define a community bank became a problem due to inflation and industry growth that makes those metrics less meaningful or a factor that determines what a community bank is.
One of the emphases that often conjures the image of a community bank is a friendlier, more personal banking experience. Consequently, it’s not uncommon for a relatively large depository institution to describe itself as a “community bank.”
Research that was conducted by the Congressional Research Service (CRS) shows that the majority of community banks and thrifts are chartered at the state versus federal level. However, they are still subject to a degree of federal oversight.
Community banks may choose to join the Federal Reserve System and those that don’t are still obligated to meet the Fed’s reserve requirements. State-chartered banks that are not Fed member banks are regulated by the Federal Deposit Insurance Corporation (FDIC), which also insures deposits at most banks. These organizations examine the financial strength of lenders and ensure they comply with federal banking laws.
The Community Bank Vs. Larger Banks- (Understanding their differences and what they stand for in the banking sector)
The bigger banks like JP Morgan, Wells Fargo, and the rest of them out there are publicly traded when compared to community banks. According to the FDIC. The community bank does not have the answer to outside shareholders. This means that community banks always way the competing interest of shareholders, customers, employees, and the local community differently from larger institutions with stronger ties to the capital markets.
The community bank is always known for its focus on traditional functions such as the acceptance of deposits and providing business loans, mortgages, and credit lines.
Even though the community banks are known to serve a small geographical area, some of them are going beyond what we regard as local banks due to the fact that they’re beginning to bring in advanced services such as online banking functionality which allows the to serve a wider audience just like other large banks out there.
The community bank focuses on personal relationships with customers, by offering them flexible interest rates on deposits which makes them better than larger banks.
Frequently Asked Questions on Community Banks
Are Community Banks Prevalent in the United State of America?
Most banks in the united state operate as community banks and collectively, it can be said that these banks employ over 700,000 individuals.
Can One Get Loans from Community Banks?
Yes, you can get a business or personal loan from a community bank.
According to Investopedia. About 60% of personal loans in the United States are given out by community banks, along with 80% of all agricultural loans. 43% of loans made online are also issued by community banks.
What Make Community Banks Different from the Larger Banks?
One of the things that set a community bank apart from a larger bank is the fact that community banks channel their loans to the neighbourhood where their deposits live and work for them as a means of helping local businesses and promoting community thrive unlike the larger banks take deposits in one state and lend in others.
Conclusion/ Final Verdict
The community bank is widely encouraged by the government because of what they start for. They serve as a bridge that connects the people in the community and serves as a means of encouraging individuals who want to start up a business or even improve an existing one without having to pass through the rigorous process of getting a loan from a large bank.
The mission of the community bank is to serve the neighbourhood and bring about development in that geographical location.
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