The role of a local bank is to function as a commercial bank within the community environment that it represents. A local bank accepts deposits, makes loans and offers other products and services such as trust accounts, credit cards, payment transactions and the issuance of lines of credit. However, the primary objective of the local bank is to enhance the community that it resides within.
The word local bank actually refers to the more commonly used term of community bank. These types of local banks deal with smaller merchants and local residents who are looking to have a more personal relationship with their bank. As concerns lending, the local bank concentrates upon a diverse base of mortgage loans, heloc loans, auto loans, home improvement loans, small business type loans and construction loans. Community or local banks must also engage in CRA loans which are mandated by the Community Reinvestment Act for purposes of improving the community with loans related to such issues as low cost housing and health facilities.
Local banks offer a wide array of checking accounts including non interest bearing and interest bearing accounts such as NOW accounts and Money Market Demand Deposit Accounts. Since local banks must compete with large money center banks for deposits, these types of banks attempt to offer better service and accommodations.
Local banks must also compete with large banks in order to attract time deposit money in the form of certificates of deposit and savings accounts. In many cases, the local bank must pay higher interest rates in order to establish new relationships.
All local, regional and large banks attempt to offer a full range of products and services that tend to attract and retain customers. Local banks have the added pressure of trying to keep up with the technological changes that are constantly taking place within their industry in order to remain competitive. Therefore, local banks often outsource their back office functions to service companies for the handling of such issues as payroll and check processing. In other cases, they piggy back their products and services with larger banks or they pool their resources. In any event, local banks offer many of the same products as large banks such as letters of credit, foreign exchange, trust services, money management and investments. The advantage that local banks have over larger banks is their involvement within the community. Furthermore, local banks attempt to provide superior and personalized service to each and every client.
Local banks must build relationships with their customers as opposed to large transactional volumes. Since local banks tend to be small in size, large accounts that process volumes of checks or cash are not profitable to a small bank operation. However, the consistent building of deposits, lending and banking services with individuals and community entrepreneurs basically defines the role of the local bank. The quality over volume scenario serves the local bank and the smaller bank customer.
- FDIC Banking Reveiw:Community Banks: Their Recent Past, Current Performance, and Future Prospects
- American Bankers Association:Online Resources
- 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.
Currently residing in Coral Gables, Florida, Carl Wolf has been a banker and financial services professional for the past 41 years. He began to publish online articles about his profession in 2009. Wolf holds an associate degree from Los Angeles City College and a certificate in international banking.