Community Affairs

Growing up in a small suburb near Boston during the 1970s, there wasn't much choice in the way of local banking. Everyone I knew belonged to the town's savings bank. I remember the place being a zoo on Saturday mornings, packed with people withdrawing money, cashing checks, creating money orders and otherwise performing the hundreds of mind-numbing financial tasks we all did prior to the "electronification" of the banking process.

A recent Saturday morning trip to the same bank found a much more sedate scene. No stack of cars in the parking lot, no bumper-to-bumper line up at the drive-thru (in fact, the drive-thru had been removed), short lines in the bank, and only two tellers on duty. Part of the reason for this decrease in traffic was the bank's adoption of ATMs, phone and Internet banking. Another reason, for better or worse, is that my hometown is now home to multiple bank branches, including regional/national entities such as FleetBank.

Indeed, one of the biggest challenges in the community banking space over the past 20 years has been increased competition from enlarged regional banks. The numbers would seem to bear this out. A yearly survey conducted by the FDIC and research firm Grant Thornton found that there are 7,933 commercial banking institutions in the United States, with combined assets of $6.9 trillion. Of these, roughly 7,534 have assets under $1 billion, which means the lion's share of total commercial bank assets lies in a mere 399 entities, or 5%, of the marketplace. It's numbers such as these that has some analysts saying the U.S. is slowly heading toward a banking oligarchy.

Keeping these figures in mind, you would think community bank executives view regional/mega banks as their primary competition-but you would be wrong. As part of the FDIC/Grant Thornton study, community bankers were asked what financial entities they considered to be their primary sources of competition. Surprisingly, less than half (47 percent) said regional banks-a number that has roughly remained the same over the past three years.

So what institutions do community bankers consider a threat? Well, brokerage firms are high on the list, with 56 percent of respondents saying they are competition. But this response rate has declined from a high of 66 percent in 1999. Credit unions also top the competitor list with 63 percent, but are also on the decline as a threat since 1999. Other financial services that have waxed and waned as potential community bank adversaries include mortgage institutions, mutual fund businesses, insurers and finance companies.

Actually, only one financial entity has grown as a threat over the past three years according to community bankers, garnering a 70% response rate in 2002. That threat is... other community bankers. From a numbers perspective this makes eminent sense-7,534 institutions have assets of under $1 billion, which makes the community banking space extremely crowded.

So at least in one respect, little has changed from the 1970s. The competition you need to worry most about most usually exists in your own backyard.