With all of the new rules that have been placed on large holding companies in the last few months, the traditional advantage experienced by larger banks has been shrinking. Of course, your local mom-and-pop banking institution isn’t going to directly compete with a global lender like JP Morgan Chase or Bank of America®, but there are distinct differences that allow these smaller lenders to offer some products at rates that larger banks wouldn’t dare to in this current financial climate. This is where the informed consumer can take advantage of the banking market and make all of the new legislation work for them.
1. Staying Small, Staying Profitable
With a focus on traditional community banking, smaller banks are able to protect themselves against the kind of lending risks that caused so many problems for large banks earlier this year, which had exposed themselves to a loss of liquidity by expanding too much, and too quickly.
2. Finding a Niche
In order to compete with large banks, smaller institutions have had to move away from financing the larger heavy industrial companies that are the realm of the bigger lenders, and instead focus on market sectors that are less attractive to the big banks, such as second mortgages and smaller loans for local businesses and individuals.
3. Under the Legislative Radar
Most of the new banking rules that have come out of the recent crisis are targeted at the major holding companies, to ensure that they maintain enough capital to protect themselves against future market downturns. These changes will reward smaller banks who have maintained a low risk, high capital buffer and will level the playing field as large banks become less willing or able to provide the same high-risk loans they have in the past.
4. The Personal Touch
This one is obvious, and although there is some advantage to having a bank with an ATM on every corner, this can seem inconsequential when you are on hold or pressing buttons for hours before you actually are able to talk to a banking representative. Small banks are able to keep up the personal touch in customer service that makes solving banking problems when they arise not only more efficient, but also a great deal more pleasant.
When banks compete, you win…or so the Lending Tree ad campaign tells us. Though most community banks are glad that new regulations will level the playing field for them, some complain that they are going to suffer under higher standards for a crisis that they did not create. Either way, during tough economic times, the savvy consumer will be able to find great deals and rates as smaller institutions struggle to get out from under the shadow of the top holding companies and find ways to make their smaller size work to their advantage.