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Wall Street’s Cohn is wrong about community banks

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Former Goldman Sachs executive Gary Cohn's recent assessment of the community banking industry proves that Wall Street has very little understanding of what’s actually happening on Main Street.

Contrary to Cohn's hot take as a National Economic Council ex-official, these challenging times have elevated the role of community banks, which have paired technological prowess with relationship-based banking to serve as predominant lenders, particularly under the Paycheck Protection Program.

In fact, Small Business Administration data shows that community banks made nearly 2.8 million PPP loans — more than half of the program’s total loans — that helped save millions of jobs. With a national presence in every congressional district, community banks reached neighborhoods both with technology and in personal ways that big banks couldn't.

Cohn's remarks at an American Bankers Association event about technological evolution simply do not reflect the current state or the bright future of community banking.

Community banks have long had a history of being more nimble than mega banks. And it’s commonplace for community banks to partner with core providers and other third-party vendors to provide the latest technologies and services to their customers.

They are increasingly partnering with and investing in innovative fintech companies to transform the banking system. As a former community banker, I’ve seen firsthand how technology service contracts are scaled for the size of the bank, based on asset size or the number of transactions.

This means that a bank with $200 million in assets can afford the same technology and services for their customers as a $50 billion or more asset bank. For some reason, this isn’t common knowledge, but it is how bank service and software contracts are structured.

What should really concern industry pundits is the withdrawal of the largest banks from the local communities most in need of access to financial services.

Community banks added 628 new offices for the 12-month period that ended in June 2019, according to the Federal Deposit Insurance Corp.’s latest annual report. Noncommunity banks added only 498 offices and closed 2,387 offices over the same period.

Meanwhile, community banks also held more than 75% of deposits in roughly 1,200 U.S. counties, of which, more than 600 of those counties had a community bank provider as their only banking office option, the FDIC study said. Meaning, these communities would not have physical access to a federally insured depository institution if not for community banks.

Through the ups and the downs, community banks have continued to operate within the strenuous regulatory requirements often provoked by the misbehavior of the megabanks and the subsequent economic fallout like the 2008 financial crisis.

In fact, it was Cohn who testified before Congress on the role of Goldman Sachs during that crisis, so he should remember it well.

Wall Street representatives, and their supporting groups, should take another look in the mirror. With the continued scandals and fines levied against megabanks for wrongdoing harming consumers, it’s clear community banks are not the culprit.

The 5,000 community banks across the nation continue to get the job done without fail while serving as the backbone of local economies through nimble decision-making, personal relationships and yes, technological innovation.

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Community banks Community banking ICBA FDIC Gary Cohn
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