Community Banks Are Standing Up for Rural America

By Rebeca Romero Rainey

Wall Street financial institutions are once again showing that when the going gets tough, they head for the exits. After ramping up lending when times were good, as just reported by Reuters, the nation’s largest banks have shrunk their agricultural lending portfolios amid the current conditions in the farm economy. This exodus of capital not only harms farmers and agricultural enterprises, but also the local businesses, hospitals, schools and rural municipalities that support the agricultural economy.

Fortunately for rural America and the citizens who call it home, the nation's community banks are bolstering their farm lending at this crucial time—demonstrating once again why policymakers should work to strengthen community banks, which stick with their customers and communities in good times and bad.

According to Reuters, the nation's 30 largest banks have reduced their farm loans by 17.5 percent since December 2015 as the U.S. farm economy has experienced an economic downturn fueled by low commodity prices, trade wars and flooded fields. While Reuters reports that these large banks have culled their agricultural holdings by $3.9 billion, however, overall bank lending to the farm sector has grown by more than $10 billion over the same period as community banks have stepped in to meet the needs of farmers and ranchers across the country.

It's not the first time community banks have risen to the challenge presented by their megabank competitors. Local communities hit hardest by the Wall Street financial crisis are now being left behind as the megabanks that fueled the calamity withdraw for wealthier areas. While JPMorgan Chase last year announced a major branching and lending boom, it has in recent months notified regulators of more branch closures than openings, according to Bloomberg. Of JPMorgan’s 185 new branch openings, 71 percent are in more affluent communities, including 70 in the Washington, D.C., metro area.

Meanwhile, community banks are expanding in the areas most in need of the banking services they need to thrive. Low- and moderate-income census tracts make up a significant percentage of megabank branch closures. Community banks, on the other hand, focus a relatively large share of their resources in low- and moderate-income tracts, and their lending in these areas is more consistent with local demographics than megabank loans.

Overall, noncommunity banks shrunk their footprint by 384 offices between June 2017 and June 2018, while community banks added more than 700 bank offices over the same time period, according to the Federal Deposit Insurance Corp. Further, community bank loan growth has exceeded growth at noncommunity banks for six consecutive years, with deposit growth more than tripling that of their larger competitors in rural areas, reflecting their continued commitment to farm communities.

These efforts build on the disparate responses to the Wall Street financial crisis, when community banks increased lending to consumers and small businesses while megabanks closed off access to credit. Accounting for more than 60 percent of small-business loans under $1 million and 80 percent of agricultural loans from the banking sector, community banks have used their more than 50,000 locations as an economic lifeline in the areas most in need of financial services.

Through it all, community banks operate within the strenuous regulatory requirements often provoked by the misbehavior of the megabanks and the economic fallout they have all too frequently caused. To help community banks spread the benefits of the longest economic recovery in U.S. history to regions that have not yet experienced strong growth, Washington should institute a regulatory environment that better distinguishes Main Street institutions from those on Wall Street.

This includes maximizing the benefits of last year's S. 2155 regulatory relief law by simplifying capital standards for community banks as authorized by Congress and instituting a truly short-form call report for the first and third quarters of the year. It means finishing the job of modernizing anti-money-laundering laws to improve uniformity and efficiency, ensuring community banks have continued access to the secondary mortgage market, and mitigating the negative impact of new regulatory mandates. It means forging a competitive landscape free from distortions caused by too-big-to-fail financial firms and the undue competitive advantages afforded by taxpayer-funded subsidies for credit unions and Farm Credit System lenders. It means advancing data breach legislation that requires all participants in the payments system to meet data security standards like those that have long applied to banks.

In short, it is time for Washington to enact policies that will support the financial institutions that help every American in every community—whether urban, suburban, or rural—join in the nation’s economic prosperity. As the only physical banking presence in one in five U.S. counties, community banks are used to meeting the needs of areas left behind by other financial services providers. By supporting these locally based institutions, we can bring opportunity and prosperity to every corner of our country, one community at a time.

Rebeca Romero Rainey is president and CEO of the Independent Community Bankers of America. This post first appeared as an op-ed on Medium.