Business & Finance Finance

Small Banks Offer Advantages Over Banking Behemoths

The banking industry has undergone a significant amount of upheaval over the past year. A struggling economy combined with plummeting portfolio values has led to an unprecedented level of consolidation among the largest financial institutions. While the titans of the industry scramble to survive, smaller banks have uncovered pockets of opportunity to better help their customers.

Below, we'll explore how the current consolidation is affecting the banking industry. We'll also describe the advantages of working with smaller institutions.

The Effects Of Consolidation

Banks have been consolidating for over a decade, but the current economic climate has accelerated the trend. Today, a few industry behemoths account for over 30% of all customer deposits while regional and community banks account for the remainder. For the smaller players in the industry, the absorption of a giant creates enormous opportunity.

Customers naturally become nervous about their bank's ability to meet their needs after they are absorbed into larger institutions. They worry about the level of customer service they'll receive. They wonder whether their credit card accounts, home loans, and savings deposits will experience any glitches. As the level of confusion rises, midsized regional and small community banking institutions often seem more appealing.

Benefits Of Working With Smaller Banks

One of the most attractive features of a smaller financial institution is the importance they place upon personal relationships. While the customer of an industry giant may know a few tellers at their local branch, a client of a community or regional institution enjoys far more exposure to the entire staff. Often, customers will personally know the tellers, loan officers, and branch manager.

Smaller banking institutions can respond to their customers' needs with more flexibility than larger companies. For example, if a customer is struggling to make the monthly payments on a mortgage loan, the branch manager can often modify the terms without going through a lengthy approval process.

It's also important to note that "small" doesn't mean inconvenient. Regional and community banking institutions continue to expand the number of ATMs available to their customers. They are also expanding aggressively into online banking to give their depositors even more flexibility.

The State Of The Industry

There is still uncertainty regarding the current economic climate and the pace of consolidation within the banking industry. The nation's largest financial institutions have shown a surprising level of vulnerability while smaller regional and community banks have displayed strength and tenacity.

The industry will continue to consolidate. The giants will merge, inspiring many of their depositors to look for more flexible options. As customer service and personal relationships become more valuable, many customers may find a perfect fit in smaller banks.

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