SMALL BANKS, SMART LOANS

Big does not automatically mean bad.  Big can mean better, and it often does.  On the other hand, big can mean bad when your bigness causes you to lose your close customer connections.  If that happens, you might find yourself out of business.  That is exactly what has happened with banks.  FDIC data shows from 1984 through 2011, only 6% of big banks ($1 billion or more in assets) survived.  During the same time, 33% of small banks (less than $1 billion in assets) survived.

A crucial reason for this difference is smaller banks (often rural banks) tend to write smarter loans.  This occurs due to the more personal connections they usually develop with their customers coupled with onsite local-economy insights (Brendan Greeley, “Rural Banks Know Something Big Banks Don’t” Bloomberg Businessweek, 10/21/13–10/27/13, pp. 17–18):

Richard Brown, the FDIC’s chief economist, says small banks have a competitive advantage with ‘nonquantitative’ (sometimes called ‘soft’) information—knowledge of their customers and the local economy.” (p. 18)

These dynamics work both ways.  In a smaller or rural community where people often know each other’s business, customers tend to be more honest, conservative, and conscientious.  They are less likely to default on loans.

I see two takeaways from this research:

1—Recognition Of Intrinsic Size Qualities.  Regardless of what your business is, it remains important to recognize the perils or pluses of your size.  That recognition should constantly inform your strategies.

2—Innovation For Enhanced Customer Connections.  Regardless of what your business is, it remains important to search for innovative ways to enhance and strengthen your customer connections.  Anything you can do to make the customer experience more intimate and personal will have a positive payback.  The opportunities are only bounded by your imagination.





About James Meadows

Currently I serve as a training team manager for Tyco Integrated Security at a customer-care center in Kansas City. Additionally, I am a business consultant, a freelance corporate writer, an Assembly of God ordained minister, a Civil Air Patrol chaplain, and a blogger.

I believe we are living in the most fascinating times of human history. To maximize the opportunities these times present, I have a passionate interest in leadership development and organizational success, both of which I view as inextricably linked.


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