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 style, many of the most successful community banks were acquired by regional and national banks in the late 1990s. This has left a void, therefore an opportunity for new banks to flourish.
One of its main advantages for clients is direct access to senior bankers and top management. With a community bank, frontline employees have more decision-making discretion than a larger bank that must follow stricter policies and procedures from corporate headquarters. For example, at most large banks, the decision to offer an individual 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 officer delivering documents to your business, community banks go a long way in providing 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.
The weaknesses of community 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 around the world and 24/7 Internet access. A growing business may find that local community banks simply cannot provide 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 at 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, much like a fast food chain. Having the luxury of making a deposit at a branch close to your office or a withdrawal close to home is a luxury some consumers simply cannot 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 companies 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 and trusts. These services may be offered by bank employees or through external partners.
Recommendations.Selecting the right bank should be based on your individual needs. Clients looking for a large branch network or high 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.
07/08/07
Skloff Financial Group
question of the month
By Aaron Skloff, AIF, CFA, MBA