Mega Banks vs Local Banks: What’s the Difference?

When it comes to selecting a bank, consumers have a decision to make between big, nationwide mega banks or small and medium sized  local banks that serve specific areas. These banks not only differ in their size and reach, but also in their values and business practices. This article delves into the influence of values at national and local banks and their impact on small business loans, customer relationships, and local economies. Both sides have their advantages and drawbacks. While big banks may provide more convenient branch locations, their emphasis of bigger businesses on Wall Street can lead to neglect of local economies on Main Street.

Mega Banks vs Local Banks: Your Wisconsin Local Economy

A main benefit of banking with a local bank is the impact it has on the local economy. Funds deposited in local banks are 90x more likely to stay in that exact area, rather than circulating around the world. Because of this, local banks can help support local infrastructure and schools, promote economic growth, create jobs, and other important community services.

Local banks prioritize community investment and local lending. According to the Independent Community Bankers of America, community banks account for 46% of small and medium-sized business lending in rural areas, despite holding only 16% of the deposits in those areas. By investing in the local community, small banks can create jobs, support local businesses, and contribute to the economic growth of the area.

On the other hand, mega banks may focus more on larger businesses and investments, leading to a lack of focus on local and rural economies. According to a study by the Institute for Local Self-Reliance, mega banks have reduced their lending to small businesses by 38% since 2006, while local banks have increased their lending by 11%. This lack of support for small businesses can have a significant impact on economies, particularly in rural areas where small businesses are often the primary source of employment.

Mega Banks vs Local Banks: Customer Relationships

The values of bankers at local banks often center on personal relationships and building trust with their customers. According to a survey by J.D. Power, local banks score higher than mega banks in overall customer satisfaction, with a score of 825 out of 1,000 compared to 797 for mega banks. They prioritize getting to know their customers and their stories and aim to provide personalized service and support.

In contrast, the values of bankers at mega banks often center on efficiency and profits. They may view their customers as numbers on a spreadsheet and prioritize their own goals over the needs of their customers. This can lead to a lack of personalization and weaker customer relationships.

Mega Banks vs Local Banks: Entrepreneurial Clients

Entrepreneurs often rely on loans to get started, and local banks play a vital role in supporting economies by providing these loans. The values of bankers at local banks often center on community and local investment. Local business bankers are a great resource of knowledge from helping hundreds of small businesses in the area succeed over many years. Their experiences, insight, and resources are invaluable to small businesses trying to grow. They prioritize building long-term relationships with these customers and understanding their unique needs. This means they are more likely to offer small business loans, even to newer businesses or those without extensive financial histories.

In contrast, the values of bankers at mega banks often center on profits and shareholder value. According to a study by the Federal Reserve Bank of New York, small business loans account for only 17% of total loans made by large banks. They may focus more on larger businesses and may be less likely to prioritize small business loans.

In fact, the lack of small business lending by big banks has been a growing concern. According to a report by the National Small Business Association, 52% of small businesses that applied for loans at large banks were rejected within the past few years. On the other hand, local banks approved 76% of small business loan applications. This highlights the importance of small banks in providing access to capital for small businesses with big ideas trying to make a difference.

Mega Banks vs Local Banks: Community

Finally, the approach of mega and local banks take towards community involvement vary greatly. Local banks prioritize community involvement and engagement and support local events and organizations. According to a survey by the Independent Community Bankers of America, 98% of community banks donate to local organizations and charities, compared to just 66% of mega banks. This level of involvement can have a significant impact on the quality of life in the local community and help to build stronger relationships between the bank and its customers.

The difference in values from mega and local banks have a significant impact on small business loans, customer relationships, local economies, and community involvement. Small banks often prioritize personalized service, community investment, and engagement, while big banks may focus more on profits and efficiency. As a consumer, it’s important to consider not only the products and fees offered by a bank, but also the values and priorities of the bankers behind the scenes. By choosing a bank that aligns with your own values and supports your local community, you can make a positive impact on the economy and build a stronger financial future for yourself and your community.

Sources:

Independent Community Bankers of America. (n.d.). Small Business Lending. Retrieved March 29, 2023, from https://www.icba.org/advocacy/small-business-lending

Institute for Local Self-Reliance. (2018, February 27). Bank of North Dakota Outperforms Wall Street. Retrieved March 29, 2023, from https://ilsr.org/bank-of-north-dakota-outperforms-wall-street/

National Small Business Association. (2019). 2018 Year-End Economic Report. Retrieved March 29, 2023, from https://www.nsba.biz/wp-content/uploads/2019/02/2018-Year-End-Economic-Report.pdf

J.D. Power. (2022). 2022 U.S. Retail Banking Satisfaction Study. Retrieved March 29, 2023, from https://www.jdpower.com/business/press-releases/2022-us-retail-banking-satisfaction-study

Federal Reserve Bank of New York. (2016, June). Economic Policy Review: Small Business Lending and Credit Availability. Retrieved March 29, 2023, from https://www.newyorkfed.org/medialibrary/media/research/epr/16v22

Independent Community Bankers of America. (2019). The impact of local banking [Fact sheet]. https://www.icba.org/docs/default-source/icba-advocacy-documents/icba-local-banking-fact-sheet.pdf