According to the Community Bankers of Wisconsin, a community bank has a board of directors made up of local citizens. This makes a community bank more in tune with the local community and typically smaller in size than national or statewide commercial banks. Commercial banks are larger institutions that cater to the needs of larger businesses although they do offer products and services for individuals as well. Both have advantages and disadvantages to consider when choosing a new bank.
Advantages of Community Banks
Community banks tend to be more involved in the local community, participating in community events and getting to know the members of their town or city. Banking customers can readily access the officers at the bank, who work in the community, not several states or cities away. Decisions on loans are typically made locally, so the approval process is much faster than when working with a loan approval committee in a larger bank. A community bank will also take into consideration the verbal explanations or personal character of the applicants.
Disadvantages of Community Banks
Community banks are smaller than large commercial banks, so they may not have all of the products that a large commercial bank would offer, specifically for larger businesses. Because they do not have the financial resources of larger banks, they may not have as many free products or the most competitive interest rates on loans or savings accounts. Finally, borrowing limits on loans may be lower than they would be with a larger bank because of the limited financial resources. For the average personal banking customer this may not be a problem, but for the business looking for a bank, it is a disadvantage.
Advantages of Commercial Banks
Commercial banks are generally well established banking entities. This allows them to offer a more diverse portfolio of financial products. Also, they have more flexibility than smaller banks when setting up financial products. For instance, you may have more customizable options when getting a home loan through a commercial bank than you would have with a community bank. These banks also typically serve a larger geographic area, so you may be able to keep your bank if you need to move or need access to your bank while traveling. Commercial banks also have more financial resources for larger loans, making them ideal for business customers.
Disadvantages of Commercial Banks
Commercial banks may have more red tape customers have to deal with to get approval for products and loans. The individual or committee approving the loan may not be at the location where you apply for it. This limits the face-to-face interaction and ability to build a personal or professional relationship with those who make the decisions about your financial products. This does not give you the option to talk about the financial decisions you have made or the situations surrounding your credit score. The officers in a commercial bank are less connected with the local community and may not even reside in your local area.
- Independent Community Bankers of America: Community Bank Advantages
- Community Bankers of Wisconsin: What Is a Community Bank
- Loan Page: Getting Your Home Loan From a Commercial Bank
- Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. "Community Bank Leverage Ratio Framework," page 2. Accessed Sep. 6, 2020.
- Congressional Research Service. "Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework," pages 24-25. Accessed Sep. 6, 2020.
- JPMogan Chase & Co. "Annual Report 2018: Chairman & CEO Letter to Shareholders." Accessed Sep. 6, 2020.
- Federal Deposit Insurance Corporation. "FDIC Community Banking Study: Chapter 1 – Defining the Community Bank," page 1. Accessed Sep. 6, 2020.
- Independent Community Bankers of America. "About Community Banking." Accessed Sep. 6, 2020.
- U.S. Small Business Administration. "Spotlight On Community Bank Lending," page 1. Accessed Sep. 6, 2020.
- DepositAccounts. "Large Banks vs. Small Banks – Who Offers the Better Rates?" Accessed Sep. 5, 2020.
- Federal Reserve Banks. "Small Business Credit Survey," page 21. Accessed Sep. 6, 2020.
Nicole Harms has been writing professionally since 2006, specializing in real estate, finance and travel. When she's not writing, she enjoys traveling and has visited several countries, including Israel, Spain, France and Guam. Harms received a Bachelor of Science in Education from Maranatha Baptist Bible College.