If anything has been proved in the past several years, it is that the Cassandras who felt that community banking was finished have been proved dead wrong.

Remember the famous study of a major management consulting firm, done a decade ago, which said that by 1995 we would have only 1,000 banks left in the nation. This prediction is on a par with the forecast of the 1960s that by the beginning of 1970 we would have a "checkless society."

The truth is that community banks have gained rather than lost strength.

Regionals and money-center banks now report that community bankers are their toughest competitors. I even remember that when two banks merged in one community, the Justice Department was reported to have gone to the remaining independent to see if it could handle the expected inflow of deposits it would get as people were drawn to it after the combined banks started the inevitable changing of forms, procedures, and personnel that go with mergers.

Pendulum Swings

But now it appears time to stop and reflect on the possibility that many community bankers have gone too far the other way in their thinking about competitive conditions.

Whereas many banks used to fear for their survival in the face of new competition from larger institutions, now some may be becoming complacent and not aware that the larger institutions are fighting back.

The May issue of the Barry Deutsch Letter from Coral Springs, Fla., hits the issue squarely on the head.

"Superregionals, long considered too clumsy to compete with the hometown bank, are rapidly getting their acts together. The community bank can no longer sit back and enjoy a natural advantage.

"In communities experiencing vibrant growth, many smaller banks are not getting their expected share of the newcomer business.

No Sense of 'History'

"The reasons aren't hard to understand. Newcomers don't know (or care) that the community bank has been there serving the community for 125 years. They have no history."

In a highly mobile society, Deutsch, with his Florida-based operation, is undoubtedly more attuned to this change in population mix than observers in more static areas. But he adds that even in a population that tends to stay put, "there is a point at which choice cannot be ignored, and the customer feels obliged to explore alternatives."

Comparing the community bank's fight against the industry giants to the local retailer's competing against Wal-Mart, Barry Deutsch concludes, "What got you here might not keep you here."

Mimicking the Small Banks

Every day we see stories of superregionals and money-center banks that are giving authority back to branch managers to make quick decisions in an effort to offer the flexibility that community banks are known for.

They are adapting the principle of changing and automating only the parts of banking that the customer does not see, but trying to keep the same faces and personal contact and decision-making in the areas where human contact in banking does take place.

In sum, they are trying to match the community banker at his own game - personal contact and service, plus advanced programs and products.

Ways to Fight Back

Luckily the community bank can fight back by concentrating its own efforts on the personal side and using outside facilities and consultants in areas like operations, product development, and the like where personal contact is not needed.

For example, the chief executive of a major bank recently told me that his consumer credit approval process is completely automated through the use of credit scoring techniques and instant contact with credit information services.

It would seem that the community bank can do the same thing in its evaluation of credit approval for individuals.

With the secondary market for loans giving the lending bank an unlimited ability to make loans and get its money back for future loans, the independent bank also has every reason to believe that it can match the larger bank in serving the community without a depleting its resources.

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