Small Banks: Extinct Species?

Many smaller banks see the super community bank structure as a major threat to their existence. Rightly so.

In many cases, a super community bank can offer service that is equal - if not superior - to the smaller bank, thereby nullifying the smaller bank's primary competitive advantage.

The super community bank is not only a friendly acquirer of smaller banks. It can also be used as a vehicle to maintain the existence of many small banks, while leveraging their capabilities through a central structure of costs and products.

Thus, the super community bank may be not only the threat, but also the solution, to the successful survival of many small banks.

Survival Prospects

Many community banks will continue to survive and prosper as standalone units throughout the United States. But it is unlikely that all 11,000 of them will survive this decade.

One alternative available to community banks that perceive their competitive position to be not indefensible in the long run: formation of a super community bank with other similar institutions in their marketplace.

In effect, community banks use the super community structure as a defensive strategy against acquisition, as well as a way to enchance shareholder value.

By joining the super community bank structure, it is likely that their profitability and franchise value will improve. This will fulfill the fundamental obligation to shareholders, while taking full advantage of existing management skills and community ties.

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