How Is A Community Bank Defined?

A new bank should be a community bank. Depending on your financial condition and personal preferences, community banks may give you some perks and advantages that larger national banks may not.

Here is a deeper look at community banking and why it may be the best option for your personal or small business banking requirements.

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How Is a Community Bank Defined?

There is no clear-cut legal meaning or consistent use of “community bank.” It has been challenging to define what constitutes a community bank. The Federal Deposit Insurance Corporation (FDIC) reviewed community banks in 2012 and altered its methodology for recognizing them. Today, the FDIC defines community banks as those with less than $10 billion in assets.

Fortunately, the qualities of these institutions are rather more readily discernible. Community banks, on the whole, offer specific financial services to their communities. These banks often support their local communities, receiving the majority of their core deposits and lending to local firms.

Similar to how some individuals choose to shop locally and support small companies, others may want to bank with a community bank.

Recognize Community Banks

Community banks are those with less than $10 billion in assets, as defined by the FDIC. According to the FDIC, community banks also provide specific banking services in their areas, acquiring deposits locally and making the majority of their loans to local firms. In comparison to bigger publicly listed banks owned by investors, community banks are more likely to be privately owned and locally operated.

Community banks are sometimes referred to as “relationship bankers” since they have a tight connection with their clients and a unique understanding and expertise of their local communities. They may have less organized credit decision-making than bigger banks, allowing individuals and small enterprises to get loans that a larger bank would not grant.

According to the 2020 Community Banking Study, the United States has 4,750 community banks with more than 29,000 branches as of the end of 2019. Community banks account for 15% of overall banking sector loans but account for 36% of all small company loans and 70% of all agricultural loans. If you operate a small company, are a farmer, or reside in a small town, community banks may be vital to your community’s economic fabric.

You may use the FDIC’s Community Bank Search tool to see if your bank qualifies as a “community bank” under the FDIC’s definition.

What Community Banks Can Provide

If you’re deciding where to bank, there are a few significant advantages and rewards that a community bank may provide.

Improved Interest Rates

In comparison to a large national bank, community banks may be able to give you more excellent interest rates on financial goods. For instance, some of the most acceptable rates on certificates of deposit and high-yield savings accounts may be found at what are referred to be community banks.


Consider a community bank if you have had a negative banking experience, are unbanked or underbanked, or have difficulty getting credit from larger banks.

Due to their emphasis on personal connections within their communities, these banks often have fewer rigid rules for loan approval. You may discover that community banks are more willing to work with you than the more prominent banks with stricter lending rules.

Individualized Attention

You could discover that a community bank is more customer-oriented and provides more personalized service than a large bank. If you want to bank with someone who knows you and is invested in your community, a community bank may provide a more customized experience.

Working with a community bank may provide you with a superior client experience. According to the 2019 Small Company Credit Survey, conducted by the 12 Federal Reserve Banks, 79 percent of small business owners who sought credit with a small bank were happy with the customer experience, compared to just 67 percent of big bank applicants. Community banks provide some of the most extraordinary checking accounts for the client experience.

Investment in the Community

Certain community banks are also classified as Community Development Financial Institutions, or CDFIs, to assist underprivileged areas in obtaining economic opportunity and financial self-sufficiency. CDFIs maybe community banks or credit unions, and there are around 1,000 CDFIs in the United States. To locate a CDFI in your area, please visit the CDFI Fund website.

Banks of the Community versus. Large Banks

In recent years, community banks have deteriorated faster than bigger banks. Between 2012 and 2019, community banks declined by 30%, from 6,802 to 4,750. During those years, the number of bigger non-community banks decreased by just 23%, from 555 to 427.

This is not to say that community banks are becoming extinct. Rather than that, community banks are merging to form more prominent institutions. Other community banks bought approximately two-thirds of the community banks that closed during this time.

According to the FDIC’s 2020 Community Banking Study, regulatory compliance has become a more significant problem for community banks than for larger banks with more resources to dedicate to this purpose. Since the financial crisis of 2008-2009, the regulatory complexity of the financial sector has expanded, and several community banks have struggled to adapt.

If you’re deciding between a small bank and a large national bank, there are many reasons to choose a large bank:

  • A broader selection of services and goods. Certain large banks provide various financial goods and services, including investment accounts, specialist corporate banking solutions, and exchange rates. According to your budget, a smaller community bank may not be able to offer you the entire range of financial services.
  • Access is simpler. Central national banks often maintain a nationwide ATM network. Some even provide round-the-clock customer care. Smaller community banks may not offer the same service and availability as larger banks.
  • Digital technology advancements. Your neighborhood community bank may not meet your expectations. Numerous smaller online banks provide an excellent digital experience.


Community banks are critical to the US economy, supplying millions of people with loans and savings accounts. While community banks are well-known for their local presence and personal ties, they are much more than brick-and-mortar locations—many community banks are pioneering and investing in new digital technologies. Indeed, some of the most reputable internet banks are community banks.

A community bank may be worth considering if you’re in the market for a new bank account, a loan, or a new home for your personal or small company money.

Joan D. Boling