Whose services are better — large commercial banks or small community banks?

The answer to this question depends on who is being served. Simply put, large commercial banks provide better services for large businesses and small community banks provide better services for small businesses.

According to the Federal Deposit Insurance Corporation (FDIC), community banks are “independent banks and savings institutions and bank and savings institution holding companies with aggregate assets (of) less than $1 billion.” More than 90 percent of the banks in the United States fall into this category, according to the Independent Community Bankers of America, which reports that there are 7,000 community banks in the nation.

Commercial banks clearly have more money so they are in a better financial position than community banks to make loans to people and companies that need a large amount of money, typically large businesses. They are also far more able to make riskier loans to customers because a loan that isn’t repaid will have a significantly smaller impact on their financial stability.

In addition, commercial banks “typically” are open more hours during the week than community banks and are more apt to offer customers a “variety of credit cards options,” according to an article in the Houston Chronicle entitled “Community Bank vs. Commercial Bank.”

However, a report by the Independent Community Bankers of America entitled “Community Banking Facts” says that community banks offer a tremendous amount of services, including all-day electronic banking, credit and debit cards with “competitive rates and features,” and automated teller machines (ATMs) that don’t charge customers fees.

More importantly, small community banks often are more flexible in loaning money to companies, particularly small companies, “with a long history of local operations,” while large commercial banks have “more restrictions” on small business loans and “narrower ranges of services for small-business owners,” according to the Houston Chronicle.

“Many community banks are willing to consider character, family history and discretionary spending in making loans,“ the Independent Community Bankers of America says in its “Community Bank Advantages” report. “Megabanks, on the other hand, often apply impersonal qualification criteria, such as credit scoring, to all loan decisions without regard to individual circumstances.”

The community bankers’ organization cites statistics that back up its claims that community banks are more apt to help small businesses and farms. It says that loans from small community banks comprise 37.5 percent of the amount of money loaned to small businesses although those same banks have only 10 percent of the industry’s assets.

On other service-related issues, the Independent Community Bankers of America also says that community bank officers are more accessible to customers than commercial bank officers and “research has shown average fees for checking accounts and other depository services are lower at community banks than at large, multi-state institutions.”

On the other hand, large commercial banks offer better services for people planning their retirement than small community banks because their investment products are superior, according to the Houston Chronicle.

The bottom line is that people who are seeking banking services need to consider their own needs before choosing a large commercial bank or a small community bank rather than making an overall assessment about whose services are superior.


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