BERLIN – With public sentiment growing against the so-called “mega-bank” financial institutions across the country, a growing movement calling for a return to the traditional values community banks offer is gaining momentum.
Large corporate banks, often chastised for their impersonal service and perceived attitude of indifference to their customers, have taken a hit as the current recession drags on, creating a groundswell of support for a return to traditional Main Street banking values. Last year, the federal government doled out billions in relief to the major corporate banks whose shaky lending practices and top-heavy corporate structures have largely been blamed for the current fiscal crisis.
Now, a significant grassroots effort to “Move Your Money,” encouraging Americans to deposit their money in stable neighborhood banks, is gaining momentum everyday as citizens are heeding the advice and closing accounts at large banks and moving their deposits to smaller institutions.
Even the federal government, which was so quick to dole out billions in bailout money to the handful or so of the top banking institutions in the country, is beginning to recognize the distinction between Wall Street and Main Street. Just last week, the House approved a crucial exemption in a regulatory reform bill, which essentially recognizes the difference between the large corporate banks and their smaller community brethren, and the Senate is expected to approve the measure.
While the mega-banks are faced with increased scrutiny and an insistence by the federal government to return to sound lending practices, the small community banks, such as the Bank of Ocean City, Calvin B. Taylor Bank, the Bank of Delmarva, Farmer’s Bank of Willards and several others in the area, have been doing it all along. As a result, more and more people are getting on the “Move Your Money” bandwagon.
“This has turned into a real grassroots effort and it’s starting to gain some momentum,” said Bank of Ocean City Executive Vice President Reid Tingle this week. “Local money is deposited and reinvested right in the community. We’re not in the business of selling off loans. The money deposited here is reinvested here.”
Taylor Bank President Ray Thompson said this week there has been some sentiment for breaking up the big corporate banks blamed in large part for the current financial crisis, and at the same time, the smaller community banks are gaining in popularity and political clout.
“There has been this movement in Congress to disassemble the mega-banks,” he said. “I really feel some of the largest banks should be disassembled. At the same time, there has been a grassroots movement to ‘move your money.’ A bunch of folks are getting together to urge citizens to get back to the traditional, more stable Main Street banks.”
As a result, the movement to go back to smaller community-based institutions is gaining momentum, largely because the faces and names behind the desks are familiar to the customers.
“The community banks are locally owned and operated,” said Thompson. “The management and the boards of directors are from right here in the community and they understand the needs of the community.”
Tingle agreed, saying the community-based banks, like his Bank of Ocean City, for example, have developed relationships with their clients over the years in sharp contrast to the cold, impersonal mega-banks.
“Most community banks serve a tighter geographic area and they know their customers’ names and faces,” he said. “It’s more about personalized service. We know who we are lending to. We know the borrower and they know us. This area is extremely fortunate to have several strong community banks.”
Traditionally, deposits made in smaller community banks are reinvested in the neighborhoods from whence they came, creating a symbiotic relationship of sorts between depositors and borrowers. The community banks serve as a middleman to ensure money deposited in the community is returned to the community.
“We have a vested interest for our customers to be successful,” said Tingle. “When the customer succeeds and does better, the whole community does better.”
Thompson agreed, saying loans to small businesses and private citizens in the community are fueled by the deposits of their neighbors and the people who support them.
“Community banks extract deposits from the local market and lend it right back into the community,” he said. “It’s all based on sound banking practices. We’re not writing exotic loans and we’re verifying income and verifying the borrowers have the ability to repay the loans. There is substantially less risk because we know our borrowers.”
For Bank of Ocean City and Taylor Bank and several others in the area, those same sound banking practices have been adhered to for over a century in the local community, and the current financial crisis has triggered a return to that.
“They’re talking about getting back to fundamentals, but the smaller community banks have never left them,” said Thompson. “We’re doing what we’ve always done – verifying income and verifying collateral to ensure the borrowers have the ability to repay the loan.”
Thompson said a return to the traditional practices of the smaller community banks offers an opportunity to turn the financial crisis around.
“We were not part of the financial crisis that erupted a couple of years ago and peaked in 2008,” he said. “We weren’t part of the problem then, but we can part of the solution now.”
For example, a common practice in the resort area is for local community banks to loan seasonal businesses start-up capital to get going again after closing up for the winter. The loans are based on solid track records of the borrowers and their ability to repay them as the season develops. The banks know their borrowers and are confident in their ability to repay the loans based on a proven track record, a partnership nearly impossible with corporate mega-banks.
“You deposit your money with us and we lend it to your neighbors who own and operate the businesses you frequent,” said Thompson. “The mega-banks don’t make loans to restaurants and seasonal businesses. Imagine what that would do to Ocean City.”
Thompson said the federal bailout of several mega-banks in the last year or so soured many customers struggling with their own personal finances, contributing to the movement to return to traditional community banks that did not receive or seek the Troubled Asset Relief Program (TARP) funds.
“The Federal Reserve and the Treasury Department made those big banks take the money,” he said. “The local community banks were never part of that, nor did they need to be. Taylor Bank never lined up at the TARP window and we never felt the need to do so.”