Community banks need to have sufficient assets and have some branches where they can service several local communities. The New America Foundation in Washington D.C. was the first to propose (2008) as a vehicle a Community Bank Trust Fund, to be administered by the Treasury Department.8 Their study stressed that some such banks need funding sources beyond local depositors. They proposed that funding could come from a tax of about one-half of 1 percent of the dollar amount of asset-backed securities, to be collected by the SEC. As a precedent, they refer to the Federal Home Loan Banks that are required to give 10 percent of their annual net income for the Affordable Housing Program.9 This is a matter that voters should bring to the attention of their congressional representatives.

Community banks provide loans in rural areas, small towns, and inner city areas. Organizations and individuals interested in the health of such communities should alert local labor unions, chambers of commerce, and other civic groups to the need for strengthening such banks at this time. Since the Great Recession of 2008, the recovery of community banks has been slow. In 2011, 92 community banks failed. In 2012, 16 have failed. Their profits have eroded. Many are not able to make all the loans for which they have funds. Their bankers feel that the Federal Reserve’s low interest rate policy hurts them. They rely on the net interest margins for a portion of their profit. This is the difference between the interest they can earn from loans, minus what they must pay out on deposits. Some of the bankers complain that the rules governing their loan-loss reserve funds are too strict and keep them from investing part of the money. They are regulated by the Office of the Comptroller of the Currency, a federal unit. Some bankers may seek to shift status from community bank to credit union, which are supervised by the National Credit Union Association, or, instead, seek a state charter.10

Cautionary Signs and Things You Can Do
When looking for a community bank, check on its assets and collateral. These can be a sign of how solid is the bank’s own creditworthiness. Does it have the kind of assets to take out loans from other financial agencies ? Check on the management and the Board of Trustees. Are they a diverse group from different backgrounds and are any of them community residents? Watch out for the possible domination by only one interest group, such as a single family, or a single business like realtors or those in the construction industry.11
8.Morrison, “New America Foundation Advances Community Bank, CU Capital Proposal,” Credit Union Times, December 03, 2008, reissued January 23, 2012.
9. Phillip Longman and Ellen Seidman, “To Save American Finances, Bring Back Community Banking,” The New America Foundation, November 20, 2008, 8. (http://new
10. Jessica Silver-Greenberg, “Small Banks Shift Charters to Avoid U.S. As Regulators,” New York Times, B1 and B8, April 3, 2012.
11. Jeanine Delay of alerted me to these matters
12. Morrison 1.


  1. joreuss Says:

    Thank you for researching this topic so thoroughly. As a fairly regular consumer of popular media, I can attest to the fact that the options described in these four essays have not appeared in mass media, at least not prominently. Nor have I seen any similar community-based financing options discussed, even in Op-Ed columns.

    I like the fact that your well-argued opinions do not require any rhetoric against large, multinational banking corporations. If anything, the lack of hostile rhetoric strengthens the effectiveness of your presentation.

    I wonder if there are easily accessible data showing what percent of savings or checking accounts owned by “LMI” persons/families are in large, national or international banking corporations, and what percent are in local (community) banks or credit unions. Alternatively, are there any studies of the characteristics of “LMI” customers of community banks? Demographic and social characteristics of community bank customers could provide clues on how best to publicize the importance of using community banks, or how best to educate non-users to the advantages, both personal and to the community, of using community banks.

  2. donald j. munro Says:

    According to Barron’s Market Watch, 74 % of the community banks that reported their earnings at the end of April, 2012 had earnings that beat the consensus expectations. Barron’s said the banks are undervalued and that now is a good time to have shares in them. –See Barron’s p. M15 of May 7, 2012.

Leave a Reply

You must be logged in to post a comment.