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Why the Local Food Movement Is Good for Community Banking

The farm-to-table movement is transforming the way that Americans think about food. Rather than buying cheap shrimp from East Asia, people like Paul Greenberg (author of American Catch) would rather eat a New York City oyster from the East River. Similarly, the modern beer drinker is more interested in sampling a full-bodied porter or small-batch ale than a standardized lager that tastes the same anywhere in the world. In these cases, consumers are willing to trade the efficiency of scale and expanded options of corporate giants like Wal-Mart for a more carefully crafted, home-grown experience.

These developments are indicative of a changing culture. People are increasingly aware that businesses that understand a particular community's style and taste are better equipped to create products tailor-made to their customers' preferences. The idea that bigger is better is losing traction as people start to favor the advantages of small, local options and that has major implications for community banking.

Just as foodies want their restaurants to understand and showcase local culture, customers increasingly seem to want their bankers to cater to their individual needs and values. If community banks position themselves as the progressive, local alternative to big banks, they could benefit from many of the changes other industries are now experiencing.

Local food, for example, is inherently inefficient from a scale perspective. But it offers a high quality and specific culture that cannot be reproduced by industrial agriculture. Even when locally-grown apples or carrots are a little dirtier and knobbier than their imported cousins, many consumers will choose them simply because their localness makes them more appealing. In the same way, community banks have significant cost disadvantages compared to their larger competitors. But they have something to offer that's out of reach for global banks: truly personal service and relationship lending.

Most banks can effectively process transactions. When customers want to take out a small business loan or apply for a mortgage, however, interaction with local bankers becomes important. This means that even customers who rely on mobile banking and rarely step into a bank branch may be swayed by the local factor.

Moreover, as big banks continue to struggle with legacy systems and the high cost of upgrading internal processes, community banks can leverage their more agile, responsive nature to make major strides in both internal and mobile systems. With the right steps, community banks can use their small size and nimbleness to be perceived as both local and entrepreneurial.

Research is starting to bear out this competitive advantage. The community banking research conference held last year by the Conference of State Bank Supervisors and the Federal Reserve revealed that consumers stand to make substantial gains by working with local bankers who know their needs more intimately. This year's conference, held Sept. 23-24 at the Federal Reserve Bank of St. Louis, will cover the latest research as well as trends observed by community bankers across the country. This analysis further serves to change the cultural conversation about community banks, alerting analysts, regulators and legislators to the power of the local trend.

The values of many consumers have already shifted toward supporting local establishments as a form of community involvement. These consumers see that when people do business with community banks, the value is returned to the community. The banker who offers customers their first mortgage loan may soon be just as familiar and fondly regarded as the waiter in their favorite restaurant or the bartender who regularly pours their favorite brew.

This is a classic vision of community banking tailored to the modern world. If community banks can connect with this trend, they could become the next frontier of the local revolution.

Lamont Black is an assistant professor of finance at the Driehaus College of Business at DePaul University in Chicago.


(3) Comments



Comments (3)
My hope is that every community banker in the country reads this excellent article and takes note. It's time for community bankers to stop complaining about the big banks and now is the time to really start doing something proactive.
The shop local movement is significant. It makes no sense to shop local and not bank local. But think of all of your would-be customers who do precisely that. Call them on it. They'll understand because they are already predisposed to shopping local. Chances are you just haven't raised their level of awareness on this disconnect and asked them to reconsider where they bank. They'll get it.
In New England where I reside, banks like Bankwell in CT. and Needham Bank in MA. have enjoyed growth in excess of 30% just in the last 18 months by targeting the disenfranchised big bank customer and asking them to "bank local". For more on the shop local - bank local movement, you may wish to visit
What is described in this timely American Banker article is actually happening right now. Kudos to Assistant Professor Black for writing so eloquently on the matter.
Posted by MAcommunitybanker | Friday, September 19 2014 at 1:10PM ET
While there are hundreds of articles encouraging the bigger is better mentality, Dr. Black reveals the competitive advantages that smaller institutions have in the real world. Relationships often trump price disadvantages. Nimbleness and flexibility kills bureaucracy and rigidity in the real world. The support of local deposits funding local loans leading to local growth aligns perfectly with the "go local" movement. Bravo for bucking the trend and lifting up the relevancy of community banks!
Posted by mjacmoses | Thursday, September 18 2014 at 4:10PM ET
I SO agree! about the culture becoming more and more interested in local businesses. Hadn't really thought about the banking aspect! but it does make sense!
Posted by rugr8full | Thursday, September 18 2014 at 2:33PM ET
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