But there's safety and security at your community or regional bank
Scott Anderson
The year 2023 has been a roller coaster ride for the banking industry and consumers and businesses have also been jostled along the track as we experienced the most accelerated interest rate hikes in a generation by the Federal Reserve. Higher rates thrust some banks into precarious liquidity situations, leading ultimately to sudden and surprising bank failures, driving uncertainty in the system.
As the threat of recession looms, the banking industry must not let this crisis go to waste. While many individuals and businesses may have initially shifted their deposits to larger global banking organizations because of perceptions of their stability, deposits in smaller institutions are stabilizing because regional and community banks are uniquely positioned to respond confidently to economic and market challenges. Indeed, regional and community banks play a critical role in our shared economic future.
Local Banks Are Safe
Utah’s banks provide a safe, secure and reliable place for their clients’ money, 24/7. It’s important to know that not a penny of FDIC-insured bank deposits has ever been lost. Businesses and consumers work hard to earn and save, so banks have aggressive fraud protection and fraud monitoring systems in place to keep their customers’ money protected. The American Bankers Association partnered with Morning Consult to survey consumers in October 2022. What they found is that consumers trust banks more than any other entity — including healthcare providers, non-bank payment providers and the government — to keep their information secure and private. Financial institutions do not take this responsibility lightly. Regional and community banks recognize their important responsibility to their clients and stakeholders and continually work to fortify their capabilities to protect customers.
While the Banking Industry Has Changed Over Time, Local Banks’ Focus Endures
For decades, banking laws prohibited financial institutions from expanding across state lines. Regulators were concerned that outside banks would enter new markets but fail to meet the lending needs of local businesses and consumers. The agricultural industry, for example, would be better served by local bankers who understood variable weather affecting farmers’ crops from season to season. But in 1994, the U.S. Congress allowed banks to expand across state lines. The shift ushered in consolidation within the industry. From 1995 to 2001, the number of banks in the U.S. fell from 10,000 to 4,200, while the number of bank branches rose as many national banks expanded rapidly. But large banks can generate capital through global markets, while earnings for regional and community banks are more closely tied to extending credit to their local small businesses, startups and farming operations. The difference is “patient capital,” as Robert Hockett, a banking expert at Cornell Law School, explained in a New York Times article on regional banks in April. Local banks are in it for the long haul, and they can work with clients to weather the ups and downs in their industries.
Regional and Community Banks Have a Stake in Their Community’s Growth and Vitality
Banks are partners in their local economies, and they have a direct interest in the economic growth, health and vitality of the communities they serve. Regional and community banks only succeed when the communities they serve also grow and thrive. They have skin in the game to help create stable, prosperous communities. That’s why regional and community banks are focused on providing capital to help small businesses get started, grow and thrive. In doing so, they help these businesses create jobs and fuel their local economies. Additionally, regional and community banks are the nation’s largest supplier of credit to farmers and ranchers.
Local Banks Play a Crucial Role in Promoting Economic Inclusion
Because of their strong ties to their communities, regional and community banks may be more invested in and willing to serve underbanked consumers and businesses who may be overlooked by larger institutions. For example, in May 2020, Zions Bancorporation Chairman Harris Simmons read a local newspaper article about a minority-owned small business that had been unable to access federal relief funds after applying through various financial institutions. Simmons called the business owner personally and introduced him to Zions Bank’s Murray branch manager, who was able to help the company secure a Paycheck Protection Program loan. Local bankers know that financial inclusion is not merely a buzzword; it’s about people and small businesses in their neighborhoods that they care about and want to see succeed.
Local Bankers Keep Their Ears Close to the Ground
Successful regional and community bankers have community mindshare. They’re often involved in their local chambers of commerce, Rotary and Lions clubs, and other civic and nonprofit organizations at leadership levels. It’s not uncommon for bank leaders in their communities to also hold positions as city mayors, council members, and on local school boards. They contribute to the fabric of their region over the long term.
Regional and community banks make monetary contributions to local sports teams, educational organizations and nonprofits that help solve local community challenges. These local banks work with partners to address issues ranging from affordable housing to redevelopment. Keeping ears to the ground allows local bankers to find opportunities to meet the unique needs of their neighborhoods.
The Future is Bright for Regional and Community Banks
As we wait to see the next move the Fed will make with interest rates to stave off a recession, economic uncertainties persist. But I’m confident the future is bright for regional and community banks. Through my involvement over the years in the Utah Bankers Association and the American Bankers Association, I have been repeatedly reminded and had my long-held belief reinforced that banking is a truly noble profession. Regional and community bankers care about creating value and “lifting all boats” through the rising tide of prosperity in rural areas, Main Streets and commercial hubs. Even with all the technological and digital improvements in the banking industry, our foundations remain unchanged. We are committed to the communities we serve.
Scott Anderson is Zions Bank’s president and CEO in Salt Lake City. He served as the American Bankers Association chair from 2021 to 2022.