The Independent Community Bankers of America (ICBA) thanked the Federal Deposit Insurance Corp. for releasing the results of its comprehensive study on the community banking industry. The study reemphasizes the importance of community banks to the U.S. banking system and to the nation’s Main Street communities.

“This much-needed study confirms what ICBA has long said—that in the midst of consolidation and overconcentration in the banking industry, community banks continue to play a unique and important role in our economy,” ICBA President and CEO Camden R. Fine said. “The study confirms that the community bank business model is based on relationships with customers and that community banks have a symbiotic relationship with the communities they serve. The future of community banking is  right as these Main Street institutions work to support our nation’s economic recovery.”

The FDIC Community Banking Study is the outcome of its yearlong Community Banking Initiative to explore issues and questions about community banks. Among its results, the study found that:

• Community banks remain vital to the nation’s economy. As of 2011, community banks made up 95 percent of U.S. banking organizations, hold the majority of banking deposits in U.S. rural and micropolitan counties, and are the only physical banking presence in nearly one in five U.S. counties.
• Community banks are relationship lenders. They are characterized by local ownership, local control and local decision-making, which fosters economic growth and helps ensure that the financial resources of local communities are put to work locally.
• Community banks are inextricably connected to entrepreneurship. As of 2011, they held 14 percent of banking industry assets, but 46 percent of the industry’s small loans to farms and businesses.
• Regulations have real costs. While no one regulation has significantly affected individual institutions, the cumulative effects of regulatory requirements have led them to increase staff over the past 10 years. Further, measuring the effect of regulation remains an important question.
• Record-low interest rates affect the industry. The narrowing of interest rates by monetary policy makers places a significant drag on the earnings of community banks, which derive 80 percent of their revenue from net interest income compared with about two-thirds at non-community banks. The longer the normalization in rates is delayed, the longer community banks will experience a squeeze on their net interest margin.
• Community banks incur lower credit losses than non-community banks. This difference has been most notable in economic downturns and is likely a result of the relationship-lending approach favored by most community banks.
• Economies of scale are overblown. There does not appear to be much evidence to suggest that economies of scale are an important source of competitive disadvantage for most community banks or that they will compel significant additional consolidation in the years ahead.
• Community banks are well-capitalized. Community banks reported higher capital ratios than non-community banks, and they mostly maintained this level of capitalization through internally-generated sources of capital.
• Community banks hold relatively diversified asset portfolios. While the study categorizes community banks into seven lending specialty groups, the “no specialty” group was the largest in nearly every period.
• Banking consolidation is stabilizing. Changes in the nature of U.S. economic growth could mitigate the disparity in growth rates between metro and non-metro areas that has limited the growth potential of community banks.