The Survival of Community Banking

By: Katherine Escalante*| Staff Writer 

https://www.fdic.gov/news/conferences/communitybanking/2016/images/cbi-small.jpg

The panelists on the Community Banking panel focused on the survival of Community Banking. The panelists discussed the Community Banking model and its viability by examining how technological advancements are affecting this model.  More specifically the panel touched on issues such as the importance of community banks, the burdens placed on them, and the complex relationship with FinTech.

While the panel had some varying views on the adaptability of community banks with emerging technology, one thing remained consistent, the community bank’s advantage is its ability to retain investment within the community.  The discussion began by examining how community banks are different and why constituents should care about these entities that form part of our communities.  One thing each panelist discussed is the local benefits derived from these smaller banks as opposed to the multi-branch banks we are all familiar with.  A benefit discussed was the importance of building a relationship with members of the community and retaining investment within the community they operate in.  However, despite these benefits, community banks face several regulatory issues, hindering their success.

One of the overarching themes in the discussion was the inadequacy of imposing regulations aimed at large banks to smaller community banks.  For example, the Office of the Comptroller of the Currency (“OCC”) imposes stringent regulations and strategically targets, credit, operational, and compliance risks as its top concerns.  An unintended result of these regulations, such as requiring self-auditing, leads to an inability for community banks to afford the additional expenses required to ensure compliance.  These self-auditing requirements would necessitate hiring experts and counsel to ensure compliance.  One thing is obvious, these regulations, in response to the financial crisis of 2008, were meant to target larger banking institutions by focusing on other investment services such as making complex swaps.  Instead these inapplicable requirements are being placed on community banks providing other services.  An alternative is a system that adequately reflects the stark contrasts between investment banks and community banks that make their net income based on the interest received on loans and small customer transactions.  These differences unraveled a discussion about the new rise in FinTech and the relationship with community banks.

The panel led a very in depth discussion of the implications of FinTech and the potential downfalls of using that line of credit.  The discussion analyzed FinTech as a potential competitor, but also as a potential vendor for community banks.  FinTech could be a means of using technology for data processing, but could still pose some issues with the traditional banking methods used by community banks.  While one panelist saw the potential benefits of FinTech as a vendor, another panelist noted the unstable nature of FinTech and his concerns with the model if backed by the Federal Deposit Insurance Corporation (“FDIC”).

The future of the community bank as we know it is uncertain.  Although their products and services will not likely change, it’s the way that those products and services are being delivered that will continue to evolve if they are to remain a part of our communities.

Katherine Escalante is a second-year law student at Wake Forest University School of Law.  She holds a Bachelors of Arts in International Relations and Global Studies.  Upon graduation, she will be eligible for the U.S. Patent Bar and intends to pursue a career in Intellectual Property Law.