Chase and other megabanks aren't — and never will be — community banks

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True community banks, those based in the local communities they serve, are used to the nation's largest financial institutions misleading the public into thinking that they, too, are "community banks" by using creative marketing campaigns. Wells Fargo applied the moniker to the retail banking arm it used to create fraudulent bank product accounts for an estimated 2 million consumers, while the tax-exempt $171-billion-asset Navy Federal Credit Union uses the term for its overseas military installations program.

Despite industry watchers who apply the term to the nation's largest financial institution, the truth is the work community banks do to serve local consumers and small businesses cannot be replicated by the largest institutions.  

While Chase is planning to open branches in local communities as part of a broader push into Boston, Charlotte, Minneapolis, Philadelphia and the Washington, D.C., area, the decades-long consolidation of the banking industry the $4 trillion megabank represents has been harmful to local communities and the result of Wall Street-based marketing campaigns. With the Federal Deposit Insurance Corp. estimating that 16.3 million people in roughly one in three U.S. counties would have limited or no physical access to mainstream banking services without the presence of community banks, rising industry concentration has put many American communities at risk of losing access to financial services.

This has a real impact on local communities. While larger banks may take deposits in one state and lend in others, community banks know their customers and channel their loans to the neighborhoods in which their depositors live and work. Community banks stick with their customers in good times and in bad. 

Despite the consolidation and imitation, true community banks continue to be the leading banking option in local communities nationwide. According to Independent Community Bankers of America data, 98% of U.S. counties host at least one community bank or community bank branch — compared to just 64% for megabanks. Community banks are also four times as prevalent in rural communities (93% to 23%) while maintaining a physical banking presence in 15% more urban counties than their larger counterparts. And the Philadelphia Fed has reported that while community banks added branches between 2019 and 2023, banks over $50 billion in assets shrunk their branch footprint by nearly 13%. 

It's not just their proximity that matters; it's their philosophy of relationship banking that truly sets them apart. The FDIC recently reported that 90% of community banks have loan decision-makers actually meet with small-business applicants, compared with just four in 10 large banks. It also found small banks have advantages in lending flexibility and in lending to marginal borrowers or those who lack documentation, which may include startups. This model allows for more nuanced decisioning that doesn't easily fit into standardized, transactional models. 

Washington's response to last year's failures of Silicon Valley Bank and Signature Bank of New York highlighted the unique community bank role, with the FDIC exempting community banks under $5 billion in assets from higher deposit insurance assessments, acknowledging their stability and commitment in ways that larger banks couldn't match.  

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Unfortunately, continued industry consolidation reflects the persistence of the nation's "too big-to fail" problem, in which a handful of megabanks enjoy a government guarantee against failure because of the risks they pose. The sheer size and complexity of "too big-to fail" firms leads to harmful consumer practices, incentivizes risky behavior that puts our financial system at risk and holds taxpayers hostage to the whims of Wall Street.

True community bankers are bedeviled by the creation of unfair competitive advantages for the largest banks that enjoy a taxpayer-funded backstop, the damage "too big-to fail" poses to the reputation of the entire banking industry and — perhaps most frustrating — its contribution to the constant, oppressive regulatory burdens that community banks face every day. 

Time and time again, the misdeeds of the largest banks — from the risky lending practices that led to the 2008 financial crisis to wrongful foreclosures at Wells Fargo to deficient trade surveillance at Chase — lead to new regulations that roll down onto the community banks that do right by their customers, regardless of policymakers' efforts to tailor regulatory oversight. These new regulations can have the perverse impact of driving local institutions out of banking — further consolidating the industry into the hands of the largest and least trustworthy entities, which megabanks such as Chase encourage. 

Community banks are highly capitalized, nimble and thus better-prepared than their larger competitors for economic crises. To address the problem of banking industry consolidation and "too big-to fail," policymakers should continue considering enhanced capital, leverage and liquidity standards; stronger concentration limits; stricter resolution regimes; and restrictions on the use of the federal safety net. 

The incoming Congress and Trump administration should also promote localized banking and economic growth. That includes addressing excessive regulatory burdens facing community banks, better tailoring rules on new bank applicants and leveling the playing field with financial firms that have government-sponsored competitive advantages, such as credit unions, the Farm Credit System and industrial loan companies. 

Meanwhile, consumers and small businesses have the power to close their megabank accounts and find a local community bank. Despite branching initiatives at any of the megabanks, the community banking business model is built upon authentic relationships and continued investment back into local communities — a decidedly different model from that of the largest institutions.