To date, there were only less than 6000 community banks open in 2018, the lowest so far in current history. This is said to be due to the value and interest in community banks, which had led investors to sell to larger banks when heavy consolidation began in the banking sector. On the contrary, this massive consolidation, in turn, created opportunities for the investors to build new community banks.
In certain states, such as Florida, where there are over 900 new residents that come in daily, there is a shortage of community banks, particularly in the major areas. This has resulted in the opening of new banks like the Gulfside Bank in Sarasota and Orlando, the Winter Park National Bank. The old banks were also assessed and recapitalized under the One Florida Bank and the Beach Community Bank. The state of Florida is only an example of the many states that have welcomed the increase of community banks.
Importance Of Community Banks
Local banks are significant in that our country prospers on medium and small-scale businesses that employ most Americans. The Small Business Administration reports that small companies make up 99% of American firms, more than 60% composed of new private-sector jobs, and almost 50% make up the private sector employment. The lenders of these groups are community banks.
JP Morgan is a renowned brand that has been trusted by many investors and clients for years. Its CEO, Jamie Dimon, wrote in The Wall Street Journal in 2016 that in this business, local and community banks do play a vital role. They are located in the communities that they serve, and ultimately, high-ranking officers reside in the same community as their clients. This gives them a great opportunity to establish strong and long-term relationships and share extensive information regarding the local culture and economy. The banking services they can provide are exceptional.
The Role Of Community Banks
The country should place equal value on community banks as it does on national banks. Each of these types of banks has a responsibility of contributing to the country’s economy and placing the country’s businesses in a steady position both locally and worldwide. And with nearly 50% of business loans transacted through community banks, these locally built banks must be kept strong and significant.
A study done by a university in the United States concluded that major consolidation was seen in many banking sectors, including the community banks. This was seen as a concern because community banks were often the relationship lenders that frequently had local ownership and control and were an important part of the decision-making process. When there is a lot of the lending and depositing transaction locally, it encourages economic progress. The resources of the whole community are ultimately put to good use. Community banks have always been intricately linked to free enterprise. In 2011, they had more than 10% of the industry’s assets and nearly 50% of the industry’s loans to businesses and farms.
Just two years ago, the regulatory sector greatly improved, as seen by the FDIC, decreasing the strict requirements and rules of opening new community banks. This move would lead to more banks and more local investors. And in the markets today, there is a return of 200% of the initial investment. Now, wouldn’t you call that productive?