Finance

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

Q: Several community banks have opened in the area recently. What are the differences between working with a bank in your community and a bank that is larger? 
 
The Problem: Choosing the Right Bank. Here a bank, there a bank, everywhere a bank-bank. Is it a song or a fact? It is now a reality. There are so many banks available, it is crucial to understand the similarities and differences of each bank as well as their strengths or weaknesses.
 
The Solution: Find a bank that suits your needs. For an individual, choosing the right bank could mean the difference between obtaining a mortgage and remaining in an apartment. A business’s decision to choose the right bank could make all the difference in obtaining a loan or closing down. Finding the right bank for you can be more difficult than it sounds. Let’s examine the two main categories of banks.
 
Community Banks Often started by executives that defect from larger banks, community banks have been starting up throughout New Jersey. Many of the larger community banks that were successful were purchased by the national and regional banks in late 1990’s. This was in keeping with the tradition corporate culture. This has created an opportunity for new banks and made it possible to thrive.
 
Customers have direct access to top bankers and management, which is one of their main advantages. A community bank gives employees more freedom to make decisions than larger banks that have to follow stricter procedures and policies from corporate headquarters. With large banks, the decision to grant a mortgage to someone is made primarily based on their credit score. 
 
A community bank is able to review the loan application, evaluate the credit score and meet the borrower to discuss any unique circumstances that might affect the final decision to approve a mortgage. 
 
It is possible for community banks to provide personalized services that are not available at larger banks. The smiles of bank officers and teller faces can make a difference in providing personalized service. The community banks have been able to retain their staff and provide consistent customer service.
 
Community banks have some weaknesses, such as their limited branch network and lending capabilities. They also lack a wide range of financial services. Many community banks have fewer branches than larger banks. Many offer ATM cards that can be used around the globe and internet access seven days a semaine. A business that is growing may discover that local banks cannot provide the $30million loan required to expand operations. The community bank will often turn away consumers looking for insurance and investment services. These services are now offered by a number of community banks through partnerships with companies who specialize in them.
 
Banks at the National and Regional Level. Some consumers like the idea that they can go into the same bank, no matter what city (or state for that matter) they are in – just like a fast food chain. Consumers love the convenience of being able to make a deposit or withdraw money from a branch close to their home. Many banks have many branches, from offices to supermarkets to standalone locations. 
 
Restaurants and gas stations that deal with cash may need to open branches in their local area. Businesses may be required to deposit cash into their bank account at least twice a day in order to lower the chance of theft. Regional or national banks may offer lending options to larger businesses looking for capital to grow. Regional and national banks have enormous lending potential locally, nationally and internationally. Many national and regional banks offer a variety of financial services. These include investments, insurance, trusts, and insurance. These services can be provided by bank employees or external partners.
 
Conclusions. Selecting the right bank should be based in your individual needs. A national or regional bank may be better suited for customers who require a large branch network and large loan capabilities. Community banks may be better suited for customers looking for personal service, more flexibility in loan criteria, and direct access to top managers. Sometimes it’s as simple as supporting local businesses in your area.
08/07/07 

Skloff Financial Group
Question of the month
By Aaron Skloff, AIF, CFA, MBA

molw.net

We are a team of professionals with each having two decades of experience in start-ups, sales, marketing, finance, HR, large scale project and profit centre management and running mature cross functional operations. At Molw.net we are big believers that knowledge transfer is critical to our industry’s evolution. We love to share our experiences and learnings through our online resources.

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