Community Service with the Personal Touch

September 23, 2014
/   Insights

Question: Community branch, personal service, mobile banking—which is the odd one out? Answer: None. Otherwise, the industry is in trouble. For some time now, there have been discussions about the future of community banks...

Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Intuit 2020 Report: The Future of Financial Services

April 11, 2011
/   Insights

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry...

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast...

The Top 10 Trends in the Digital Banking Industry

December 18, 2013
/   Spotlight

2014 is rapidly approaching and as the year wraps, the Digital Insight team has pulled together the top 10 trends in the digital banking industry based on data and trends from studying financial institutions....

Small Business: Perception vs. Reality

November 21, 2012
/   Insights

In the most recent election cycle, like most others before it, the one sector of the economy that got the most attention was small business.  This is the future, we were told by every...

Mobile Banking Engagement: Data from Digital Insight

June 24, 2013
/   Spotlight

Intuit Financial Services has been conducting a comprehensive and ongoing study of financial institution customers. From these studies, the company has been able to provide a deeper view of banking customer behavior across several...

Fast Facts: Financial Executive Economic Outlook Report

February 1, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of it’s Fast Facts, reliable, bullet-point research about issues facing the financial services industry. This series is the The Financial Services Roundtable’s first bi-annual Financial Executive Economic Outlook...

Financial Literacy Month: How are you celebrating?

March 22, 2013
/   Insights

With April approaching, it’s almost time to kick off Financial Literacy Month! Strongly supported by the United States Congress and the Financial Literacy and Education Commission, Financial Literacy Month aims to promote the importance...

It was always known that from the moment she was awarded a spot on the Senate Banking Committee, freshman Sen. Elizabeth Warren would be making waves. In the few months since her swearing-in, she’s certainly lived up to her billing: She’s hammered bankers, lobbyists and regulators alike on issues such as home foreclosures, announced an active review of the settlement the government reached with big banks, and called for major changes to gender equity laws. And that’s all in just the past few weeks.

Another recent query, however, may have even greater consequences for the banking industry. During a hearing with the Senate Committee on Banking, Housing and Urban Affairs, she asked a direct question that has perhaps been on many others’ minds: “Are we reaching a point where we should have a two-tiered regulatory system?”

By any definition, this is at least a valid question. Specific subtleties aside, the entire industry is essentially subject to the same set of regulations. However, as the Federal Deposit Insurance Corp. has reported, community banks represented a staggering 95% of all banking organizations in 2011, yet retained only 14% of all banking assets. Incidentally, that figure represents a steep drop—in 1984, the same industry segment held 38% of all U.S. banking assets.

There are other serious discrepancies, too. Despite the dominance of larger banks in this domain, the FDIC revealed that community banks hold the majority of banking deposits in U.S. rural and ‘micropolitan’ counties. In fact, almost 20% of all counties in the United States have no physical banking offices other than community banks. This represents a sharp urban-rural divide, ensuring that any change to the system could have major ramifications.

There’s another variable here that may be even more significant: These community banks, which technically have such a small footprint in the industry overall, currently hold 46% of all small loans to businesses.

If this is seen as a problem, is a two-tiered banking system the solution? It’s an interesting question that deserves extended discussion.

First, as the FDIC makes clear, community banks often succeed or fail for the same reasons as their larger industry counterparts (or even other businesses). The three main factors are distressingly familiar: too-rapid growth, an unjustified focus on commercial real estate lending and volatile funding practices. In effect, some banks made bad decisions and paid the price.

However, it should also be noted that the banking environment in 1984 (the ominous date cited in the FDIC report) was entirely different, one without online banking or mobile apps. As discussed in this blog frequently, many consumers no longer feel the need to go the neighborhood bank, since a basic smartphone can take them anywhere. Does this hurt community banks, or does it give them the ability to take on larger competitors more aggressively?

Moreover, does a two-tiered regulatory system imply that community banks will face fewer regulatory restrictions? Sen. Warren makes the case that small banks are subject to too many mandates that were written for their larger brethren, creating a fundamental unfairness that hurts some competitors.

Larger institutions could argue, however, that more regulations in effect penalize larger corporations for their success. After all, short of monopolistic concerns, shouldn’t everyone have to play by the same rules?

There are perhaps no easy answers here. But in the weeks and months ahead, as the economy continues to heal, the housing crisis works itself out and new technologies continue to emerge and stoke competition, it will be interesting to see how this debate plays out.

(367)

Insights

Banking.com’s perspective on industry news and trends

(213)

Spotlight

Must-read news and insights from financial industry leaders

(89)

Voices

Compelling voices and contributed content from around the web

James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Brad Strothkamp

http://www.forrester.com/rb/analyst/brad_strothkamp