THE CASE FOR COMMUNITY BANKS, RATHER THAN LARGE, GLOBAL BANKS Part one

The Third Essay in the sequence on income inequality.

This is the first in a series of four blog entries that seek to demonstrate the link between income equality and economic and financial policies and to show how community banks can help to alleviate income equality in the country.  This topic is rarely if ever covered in mainstream media.

“ While community banks with assets under $1 billion represent less than 11 percent of banking assets, they provide nearly 40 percent of the loans the banking industry makes to small businesses, extending credit that is crucial to job creation…They have a unique role to play in our financial system.”—-FDIC Acting Chairman, Martin J. Gruenberg, American Bankers Association, October 25, 2011.–

Summary: IPPA supports the use of community banks and credit unions for people who routinely bank as individuals or as family members. In contrast, the priority of large international banks is to provide services to corporations, many of them global. Their profits come mainly from trading, which may not benefit local depositers. We can ask if those big banks provide any local social or economic benefit. Normally, community banks have less than $1billion in assets, and, until 1994 made up 94% of the banking industry. Their officers are usually members of the local community. Below, we also point to warning flags to consider when making a choice among community banks, such as their assets and collateral and the composition of their boards. We offer compelling ethical reasons why those institutions may warrant our business, one of which is that there are community relationships between borrowers and lenders, which may foster trust. We begin by flagging the services community banks could provide to people at the lower end of the income spectrum.

One Response to “THE CASE FOR COMMUNITY BANKS, RATHER THAN LARGE, GLOBAL BANKS Part one”

  1. Doug Hollowell Says:

    Chairman Gruenberg’s comments may understate the importance of community banks. While banks under $1 billion in assets represented 40% of the Small Business Lending, they also represented 28% of the general commercial lending (outside of the Small Business Lending Programs) of less than $1 million. And the significance of that particular segment of the economy cannot be overstated. Small businesses, where community banks focus their commercial lending, represnt 99.6% of all US businesses, 99.9% of all new businesses and the majority of private sector employment. The large money center banks, on the other hand, generally engage in lending to large established national or multinational corporations and have until recently derived more revenue from proprietary trading than from lending. As Fed Chairman Bernanke stated in March of this year, community banks “keep their local economies vibrant and growing by taking on and managing the risks of local lending, which larger banks may be unwilling or unable to do. They often respond with greater agility to lending requests than their national competitors because of their detailed knowledge of the needs of their customers and their close ties to the communities they serve.”

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