It’s no secret that in an era of bank mergers, a growing number of us are being served by a few large banks with names we all recognize – staffed by people who may not recognize us when we walk into a branch. Fewer people have a relationship with a banker who knows them on a first-name basis. Gone are the days when a person’s banking relationship was with an institution based in their community where the bankers knew their name and cared about the growth of their local area.
Or are they?
Here’s why it’s easy to get the impression that community banks – typically defined as locally owned and/or operated with less than $1 billion in assets – are a dying breed: Between 1984 and 2011 the share of U.S. banking assets held by community banks shrank by more than half, from 38 percent to 14 percent, according to the Federal Deposit Insurance Corporation (FDIC) (PDF). Community banks had only around a third of America’s banking offices at the end of 2010. Furthermore, these institutions were on the “front line” the Great Recession of 2007-2009, as then-Federal Reserve Chairman Ben Bernanke said, and hard-hit as a result.
So it may surprise you to know that despite all that, community banks still made up 95 percent of U.S. banking institutions in 2011. Given that they aren’t going away anytime soon, it’s worth considering whether, just as you might “shop local,” “banking local” could be a good option for you — and your community.
According to Bankrate.com, advantages of patronizing a community bank can include more personalized service, lower fees, and more lending flexibility. Disadvantages can be fewer services than offered by big banks, and a greater possibility that the institution is struggling, so you definitely want to do your homework. The FDIC has a BankFind tool you can use to look up your bank, make sure it is FDIC-insured (protecting your deposits up to $250,000) and get a financial report.
There’s also a certain type of community bank that is focused on developing the community around it: one that also has the designation of community development financial institution, or CDFI. Such institutions receive funds from the federal government to help in their mission to reach underserved people, promote local economic development and create jobs, promote homeownership and increase financial literacy in their communities. A list of certified CDFIs as of June 30, 2015 is here in the form of a downloadable Excel file.
One example of such a community bank with a purpose is Urban Partnership Bank in Chicago. With a stated commitment to “build vibrant urban neighborhoods and promote economic and environmental sustainability for future generations in Chicago, Detroit and beyond,” UPB has focused on funding local business development, keeping homeowners in their homes and serving the approximately 25 percent of people in their service area that are unbanked (those without a bank savings or checking account) and underbanked (those who may have a bank account but rely on certain non-bank services as well, like payday loans).
According to a 2014 progress report (PDF), UPB originated $90.4 million in commercial loans in 2014, an increase of 16 percent over 2013. New business loans totaled $49 million in 2014, 40 percent over 2013; and commercial real estate loans totaled $41.4 million, nearly 9 percent more than in 2013.
The bank also said that in 2014 it “kept 210 homeowners in their homes by restructuring their loans, and we helped another 14 homeowners avoid foreclosure through the Illinois Housing Development Authority Home Preservation Program.”
Furthermore, the bank reported that “Financing from Urban Partnership Bank is helping build a modern new campus in Chicago’s West Side North Lawndale neighborhood for UCAN, a 145-year-old social services organization that provides a wide range of important services to young people who have been removed from their homes due to abuse or neglect. “
Such activities are the hallmark of a “mission-oriented bank,” and as a result “distressed communities across the U.S. with above-average poverty and unemployment levels are seeing more loans, job creation, and access to banking services,” reported the National Community Investment Fund, which surveyed 24 “mission-oriented banks” in 2013, including UPB. Among those banks surveyed, which collectively reported $1.5 billion in loans, 70,000 jobs had been created since 1998.
“Based on 2013 data, approximately 45 percent of jobs created went to women and 65 percent to minorities,” according to NCIF. Meanwhile, 81 percent of reporting banks’ clients are minorities and 43 percent are women; 86 percent of the banks’ employees are minorities and 68 percent are women.
A list of the “mission-oriented banks” surveyed by the NCIF is here.
So what do you think? Are you ready to “bank local” with a purpose, and support the growth of your community?