Academic journal article ABA Banking Journal

Rx for That Sinking Feeling

Academic journal article ABA Banking Journal

Rx for That Sinking Feeling

Article excerpt

It's been the best of times for community banks the past few years. They've picked up scores of customers disgruntled over one or more of the many bank mergers. But this happy state of affairs may soon be ending. The main reason is indicated by the wry observation we heard one community banker make recently. He said, "Bank of America is getting good." Meaning, some of the big guys are getting their act together.

Perhaps that's why at a recent ABA gathering of community bankers we detected, if not outright gloom, more evidence than usual of discouragement and frustration over the competition small banks face. This is understandable. Look who they're up against: subsidized competitors (credit unions, Farm Credit System); deep pockets looking for market share (the big banks); less-regulated nonbank companies skimming off their best customers (too many companies to list); and Internet companies edging onto their turf (Charles Schwab, America Online, E-Trade/Telebank, NetBank).

But there's no need for discouragement, and certainly not gloom. Our vast economy can sustain a great variety of approaches and players. A glance through the listings of the top performing banks in the cover story beginning on p. 44 will show you that small banks can compete. Granted many of the top players are highly specialized, or are chartered units of big companies. But not all of them are by any means. Several of the both types are profiled in the Community Banking department which begins on page 18.

Counterbalancing the feelings of frustration at the ABA meeting were numerous comments and anecdotes suggesting that where there's a will there's a way. To see the way, however, you may need to jettison some cherished notions, like the CEO of a Southern community bank did: "We kid ourselves," she said, "if we think people do business with us because we re a community bank.' That's important to us;' it's not important to customers. If a big bank undercuts our pricing by 10%, the customer is not going to care about the fact that we've been here since 1889."

For some people pricing is everything. That's hardly a new situation, although it is more prevalent now that there are so many players pushing banking products. You may decide, as a result, to concentrate on customers who appreciate good service and are willing to pay for it, of which there are still quite a few. …

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