In his latest book, journalist Oscar Perry Abello argues that community banking has a crucial role in addressing urgent social challenges—from developing a racially just economy to preparing for climate change. In this section, Abello addresses the fact that big banks now dominate finance when that wasn’t always to case and how restoring community banking could remedy this issue.
This excerpt is from The Banks We Deserve by Oscar Perry Abello. Copyright © 2025 Oscar Perry Abello. Reproduced by permission of Island Press, Washington, DC.
It’s a lesson worth taking to heart for those who want to confront the big challenges this country and this planet face today, challenges that require action at every level of government, commerce, and industry, challenges like racial inequity, lack of affordable housing, and climate change. We can’t wait around for giant global megabanks to swoop in and save anyone. Communities need to reclaim the power of banking.
We’ve never done anything big in the United States without little banks.
We’ve never done anything big in the United States without little banks. Although community banks like Ponce [a Bronx-based bank founded in 1960 by a group of Puerto Rican activists and business leaders] have always shared the landscape with larger institutions and other kinds of investors, since the country’s inception community banks have made loans to build, acquire, and maintain most of the houses, apartment buildings, storefronts, smaller office buildings, factories, and warehouses that make up the cities and communities where we live, work, play, or gather for worship and other purposes. Community banks also funded the beloved local businesses that have become pillars of so many communities from big city neighborhoods to small town main streets—and they’re still a major source of small business lending today. Even when it comes to big public infrastructure projects like roads, bridges, public transit systems, water and sewer systems, and power systems, all those projects get financed using municipal bonds, many of which community banks bought on the bond market along with other investors. Community banks were once a much larger collective force in the financial system than it might seem given today’s much different banking landscape, where global mega-banks become more dominant every quarter.
There isn’t a universally agreed-upon definition for a community bank, but generally speaking, it’s a bank that focuses on a concentrated geography, like a city or a metropolitan area, or perhaps a rural county. Community banks are also characterized by their reliance on what banks call “soft information”—their knowledge of local community needs and their relationships with local businesses or local developers—to make lending decisions. Since the 1980s, community banks have fallen both in number and in market share. According to the Federal Deposit Insurance Corporation, which regulates banks and insures bank deposits in the United States, in 1984 there were 15,767 community banks, representing 39 percent of banking industry assets.[2] By the first quarter of 2024, there were just 4,128 community banks, representing just 11.31 percent of banking industry assets.[3]
What happened to all those community banks? Financial crises took down a big chunk of them. Between 1980 and 1995, more than twenty-nine hundred mostly small community banks failed during the prolonged savings-and-loan crisis.[4] The global financial crisis that started in 2007 took down another five hundred mostly smaller banks by the end of 2014.[5] But outside of these two periods, bank failures have been quite rare since the inception of federal deposit insurance in 1934. Between 1941 and 1979, an average of 5.3 banks failed a year; between 1996 and 2006, there were an average of 4.3 bank failures per year; and between 2015 and 2022, there were an average of 3.6 bank failures a year.[6] That still leaves around 8,300 community banks that were simply bought up by larger banks, which often would later get bought up by even larger banks.
The actions of the big four banks overall show that they’re just not as interested as community banks in making investments in communities.
The consolidation of the banking industry was a policy choice. In the 1980s, US policy makers and regulators reversed their long tradition of protecting and encouraging local ownership of the banking system. For different reasons—including the rise of political ideology opposed to any government regulation—they began instituting a series of sweeping legislative and regulatory reforms at state and federal levels of government that paved the way for the largest banks to swallow up all those other banks. It started at the state level. In 1980, Maine was the only state that allowed corporations based out of state to acquire banks within its borders.[7] By 1990, only four states still had such restrictions. In 1994, Congress eliminated the last remaining federal restrictions against banks doing business across state lines. In 1999, Congress eliminated the wall between main street–oriented commercial banking and Wall Street investment banking, a division that had been put in place in response to the financial market crash that led to the Great Depression. The four biggest banks that dominate banking today—Chase, Bank of America, Wells Fargo, and Citi—were not legally allowed to exist as nationwide commercial and investment banking conglomerates until all these changes were in place by the end of the 1990s. Back in the mid-1980s, these four banks, as they existed at the time, only represented 6.2 percent of all banking industry assets. Now, the banking system is basically reversed from what it once was. Out of $24 trillion in assets across the entire US banking industry in 2024, these four biggest banks hold $9.4 trillion, or 39 percent of banking industry assets—the same exact share of the industry that community banks once held.[8]
In 1984 there were 15,767 community banks, representing 39 percent of banking assets…[today they’re] just 11.31 percent.
Some would say the shift toward bigger banks is for the better, including many in the banking industry. Bigger banks, the argument goes, are more convenient for consumers and businesses, offering larger branch networks, more ATM locations, and economies of scale that lower costs. Larger-scale banks can squeeze more investment into creating more user-friendly technology, including online and mobile banking, as well as promising more efficient underwriting and loan approvals. They say bigger banks are more stable and more capable of weathering economic shocks, but when the whole economy goes through a rough time, the government has had to bail out banks of all sizes. In earlier periods of US history, the Federal Reserve System, federal deposit insurance, and the Federal Home Loan Banks were all originally created to protect and support banks of all sizes, including the smallest community banks. By the time of the global financial crisis, the federal government’s new approach was clear: it chose to bail out big banks over community banks, even though big banks had more to do with causing the crisis in the first place.
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No matter what the big four banks say about their intentions—and there are some very well-intentioned people doing some very interesting community-oriented work at those big four banks—the actions of the big four banks overall show that they’re just not as interested as community banks in making investments in communities.
Out of the $2.7 trillion in the combined investment portfolios of the 4,128 community banks, $1.9 trillion or 70 percent of community bank portfolios are actual loans to people or businesses, nonprofit organizations, or government bodies.[9] Meanwhile, out of the $9.5 trillion in the combined portfolios of the big four banks, $3.9 trillion or just 41 percent of their portfolios are actual loans. The more these biggest banks come to dominate the banking system, the less invested the whole banking system is in the places we work, produce, play, shop, and call home.
Notes
[2] Federal Deposit Insurance Corporation, “Ratios for Community and Noncommunity Banks,” FDIC Quarterly Banking Profile, accessed November 6, 2023, https://www.fdic.gov/analysis/quarterly-banking-profile/index.html.
[3] Ibid.
[4] Drew Desilver, “Most U.S. Bank Failures Have Come in a Few Big Waves,” Pew Research Center, April 11, 2023, https://www.pewresearch.org/short-reads/2023/04/11/most-u-s-bank-failures-have-come-in-a-few-big-waves.
[5] Ibid.
[6] Ibid.
[7] David Mengle, “The Case for Interstate Branch Banking,” FRB Richmond Economic Review 76, no. 6 (November/December 1990): 3–17, https://ssrn.com/abstract=2122684.
[8] Federal Financial Institutions Examination Council, Reports of Condition and Income, March 31, 2024.
[9] Ibid.
