Wednesday, 28th June 2017

Local Banks

Posted on 31. Oct, 2011 by in FINANCE

With the emphasis on promoting local businesses these days, it seems we are craving a return to one-on-one, personalized customer service. And no more apparent is this need than during our daily rituals dealing with our banks. Menu options, muzak, lengthy hold times, remembering pin numbers, passwords − we’re growing weary of too many options and the lack of human interaction. In this post-911 era, patience and trust are slowly eroding and many of us are hanging on to them for dear life.

Larger banks are certainly convenient with technological advances in online banking, apps on personal devices, paperless ATM machines, etc. For the Type A personalities, this instant gratification is just what the doctor ordered. But when I think of my 93-year old father-in-law who just needs a simple question answered and a nice caring voice on the other end, it can be a scary scenario of frustration wrought with impersonal and confusing options for some.

But just around the corner, hometown banks are making a revival. Reminiscent of a slower time, they are but just one avenue available to us where we might find that warm and fuzzy feeling we all yearn for. The pros and cons of big banks versus small banks are really pretty obvious, and can be found on any internet search. It really boils down to what your needs are on an emotional level.

So maybe the smaller institutions don’t have 25 ATM machines up and down the coast. And, yes, if you relocate, you may have to change banks. But it’s also easier to grab pre-packaged veggies in a cold grocery store, scan your own purchases and never have to commune with a human than it is to scour the area for a local market that provides fresh, sustainable produce, friendly people, less overhead and a sense of community. It’s the same with banks. Sometimes it’s not the end result, but the journey itself.

Big banks these days are making a concerted effort to replicate the coziness of the smaller institutions by having that lonely bank employee pounce on you the minute you walk into the lobby, but their hands are usually tied to an extent once you’re up to bat. Signin sheets, form filling and an assembly line of customers is usually the norm. And you better remember your mother’s maiden name.

The fees in a smaller bank will probably give you less heartburn than those associated with bigger banks. Bounce a check accidentally? The lack of bureaucracy in the small bank may trump dealing with the exorbitant fees charged by a larger one. Need a loan? You will probably deal with someone in an executive capacity much quicker in a small bank. Never going to happen in a large bank. And instead of relying on “transaction banking,” in which formulas and calculations govern lending decisions, community banks rely on “relationship banking” where personalized considerations are often taken into account. Good ole Frank at the local bank may have known you since you were knee high to a grasshopper. And as cliché as it sounds, it’s not always what you know, but who you know. That is unless you were the kid that threw the baseball through his window 15 years ago.

Angela Oddone, who splits her time between D.C. and New York, had a friend recommend a coop credit union when she was looking to apply for a mortgage. Having most of her accounts at a larger bank, she called for assistance, but was put off by the “hostile nature of the representative.” She followed her friend’s advice and approached the credit union, where she was treated with courtesy and respect by a friendly representative and she was hooked.

Large banks today tend to be public companies. Their stockholders are spread all over the globe, especially on Wall Street. The short-term interests of these shareholders are rarely attuned to your well-being or of the community where your bank operates. And, according to an article in The Washington Monthly (“Too Small to Fail,”), small-scale financial institutions are, for the most part, holding steady − and sometimes even better than steady. According to FDIC data, the failure rate among big banks (those with assets of $1 billion or more) is seven times greater than among small banks.

What’s good for one isn’t always good for the other Banking regulators prevented small banks from taking on the kind of debt ratios assumed by their big brother competitors, and when all those under-regulated behemoths started peddling ugly subprime mortgages, community banks steered clear − a blessing in disguise, I’d say. Some small banks completely got out of single-family mortgages. Instead of offering “interest-only, no-down payment ARM options,” they learned to just say no. Small banks would prefer to reach out to their niche borrowers, such as local churches and other smaller establishments.

Certainly there is an important role to be played by properly regulating financial institutions. Nobody wants small-scale bankers to be coddled or protected, eroding their competitiveness and enterprising spirit. But friendlier policies certainly would be helpful to counter the decades of bias that has been seen toward the big guys, and promoting community building prevents monopoly finance.

Radhika Murari, owner of a small business (www.ImInIt.biz), uses Middleburg Bank in Loudoun County for her business account. “We did not want to continue to support the big banks which had been responsible for the mortgage fiasco and the ensuing financial crisis.”

Small banks are closely tied to the fortunes of the community and, unfortunately, that can make them more vulnerable to local downturns. On the bright side, it gives local bankers more incentive to bring their business community together to solve common problems and find new ways to prosper.

Prior to the recent meltdown of the global financial system, small-scale banks were mainly viewed simply as nostalgic and romantic. But after the bursting of the financial bubbles in the last decade, it certainly would be in our best interest as a society to reconsider the old adage, “What’s old is new again.”

And I bet my father-in-law could use that new toaster that’s being offered to open that new account.

Post By Catherine DeCenzo (3 Posts)

Catherine DeCenzoCatherine DeCenzo is a freelance writer living in the Broadlands. She prefers the glass-half-full, humorous side of life and has an appetite for the irreverent in her personal blog at catclause.wordpress.com and she can be contacted at decenzoc@hotmail.com

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