Comment: The Sole Independent's Pressures, Opportunities

When local banks merge with out-of-town giants, the spotlight tends to shine more brightly on the community banks that remain.

Regulators are sure to pay a visit to make sure that the local bank can handle all the extra business likely to flow in from people disillusioned with big-bank service. They will see if the local bank has the capital and resources to handle an increase in loan volume. And they will make sure that it can provide the service that will be demanded of it.

The last community bank in town can also come under more pressure to contribute to nonprofits.

Often when a bank ceases to be independent, new management feels less obligated to support schools, theaters, youth sports programs, and other organizations. After all, the acquirer has its own agenda of public service in its headquarters city.

Time and effort devoted to local causes also diminish after a bank is bought out. Sure, the former CEO may still be in town running the local affiliate, but the loss of the fancy title often can mean a loss in stature.

There is, however, a good side to this need for more personnel support. It gives employees an opportunity to advance themselves, and makes their own workday more meaningful.

The remaining independent also gets a good opportunity to reevaluate community service policy, and how that policy affects its bottom line.

It's important to remember that a bank's first obligation is to its shareholders. So if the community betterment programs do not improve the bank's position, bank boards should think twice about charitable involvement. In fact there is even a legal obligation to do so.

This is not as hard-hearted as it sounds. We have case after case of banks that have gone under or been seriously weakened because their communities faded away. A bank's self-serving policy can, in the long run, be the best thing for the community.

Some banks feel an onus to support charities simply because the other local independents have been swallowed up. But that support often is not reciprocated - frequently the nonprofit will move its deposits to the newly merged bank if the interest rate is a few basis points higher, or turn to the money market for similar savings.

A savings bank executive I spoke with lamented: "We went out of our way to serve our community, at great expense to ourselves. Yet when we were in trouble, no one came to our aid."

Clearly, being the remaining independent has its downside. But it also presents a chance for thoughtful examination of the role a bank should play in the community and how it should balance its service to its three publics: its town, its employees, and the people whose investment gave it its start.

Mr. Nadler, an American Banker contributing editor, is a professor of finance at Rutgers University Graduate School of Management in Newark, NJ.