What are the pros and cons of community banks versus regional and national banks?

Q:Several community banks have recently opened in the area. What are the advantages and disadvantages of working with a community bank versus a regional or national bank?


The problem: choosing the right bank.Here a bank, there a bank, everywhere a bank-bank. A song or a reality? These days it is a reality. With so many banks to choose from, it’s important to understand their similarities and differences, as well as their strengths and weaknesses.


The solution: find a bank that meets your needs.For an individual, choosing the right bank can mean the difference between getting a mortgage and staying in an apartment. For a business, choosing the right bank could mean the difference between getting a loan and going out of business. Finding a bank that meets your needs can be more complicated than it seems. Let’s look at the two broad categories of banks.


Community Banks.Often started by executives defecting from larger banks, community banks have been starting up all over New Jersey. In traditional corporate fashion, many of the most successful community banks were bought out by regional and national banks in the late 1990s. This has left a vacuum, thus an opportunity for new banks to flourish.


One of its main advantages for clients is direct access to senior bankers and senior management. With a community bank, front-line employees have more discretion in making decisions than a larger bank that must follow more stringent policies and procedures from corporate headquarters. For example, at most large banks, the decision to offer a person a mortgage is based primarily on the applicant’s credit rating.


A community bank has the flexibility to review the application, review the credit score, and meet with the borrower to understand any unique circumstances that may influence the final decision to offer a mortgage.


Community banks can offer personalized services that larger banks have a hard time matching. Whether it’s the smiling face of a teller or a bank official delivering documents to your business, community banks go a long way in demonstrating a high level of personalized service. Community banks have done a good job of retaining their staff, allowing them to provide a consistent customer experience.


Weaknesses of village banks include their limited branch network, credit capabilities, and variety of financial services. Unlike some of the larger banks, many of the community banks have a small number of branches. Fortunately, most offer ATM cards that can be used worldwide and 24/7 Internet access. A growing business may find that local community banks simply cannot offer the $30 million loan needed to expand operations due to bank lending restrictions. Consumers looking for investment services and insurance services will often be turned away from the community bank. Several community banks have recently begun offering these services through partnerships with companies that specialize in these services.


Regional and National Banks.Some consumers like the idea that they can go to the same bank, no matter what city (or state) they are in, just like a fast food chain. Having the luxury of making a deposit at a branch near your office or a withdrawal near your home is a luxury some consumers simply can’t resist. Many of the largest banks have hundreds of branches in a wide spectrum of locations, from supermarkets to office buildings to stand-alone locations.


Businesses that deal in cash, such as restaurants and gas stations, may require a regional or national bank with branches near each of their locations. Some businesses are required to deposit cash into your bank account twice a day to reduce the risk of theft. Larger businesses looking for capital to grow may need the credit solutions offered by regional or national banks. Regional and national banks have enormous lending capacity locally, nationally and globally. Most regional and national banks offer a wide variety of financial services, from investments to insurance to trusts. These services may be offered by bank employees or through external partners.


Conclusions.Selection of the correct bank should be based on your individual needs. Clients looking for a large branch network or strong lending capacity may be better suited with a regional or national bank. Clients looking for personalized service, direct access to senior management, and more flexible lending criteria may be better suited with a community bank. Sometimes it all comes down to supporting a local business in your community.


Skloff Financial Group

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By Aaron Skloff, IDA, CFA, MBA

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