Megabanks Continue Exiting Local Communities

Nov 01, 2019

rebeca_romero_rainey-2018_150pxBy Rebeca Romero Rainey

The latest news from Wells Fargo reinforces what we've long known about Wall Street—when the going gets tough, the megabanks head for the exits.

As reported by Reuters, Wells Fargo has laid off more than 200 bankers, with the cutbacks focused on agricultural lenders concentrated in rural areas such as North and South Dakota. In their place, the nation's "biggest bank lender to the U.S. agriculture sector" will create a smaller group of agricultural bankers in one of its centralized banking hubs and focus on more profitable clients, according to the report.

Considering Wells Fargo's history of opening phony customer accounts, and the growing trend of megabanks withdrawing from Main Street communities, none of this should come as any surprise.

This is particularly unfortunate timing amid a downturn in agricultural commodity prices and looking ahead to the spring planting season. This move by Wells Fargo is very much a blow to many farmers and small businesses who will surely have to find a new lender. But we want those customers to know that they have a great option close by—their local community bank, which they can find by visiting www.banklocally.org.

The news reinforces the trends that we’ve been seeing and have been concerned about for quite a while, as noted in my Medium op-ed this summer. The Reuters report notes that Wells Fargo is following other large U.S. banks in scaling back exposure to farmers, paring its farm-loan holdings by more than 15 percent since December 2016. This coincides with a declining megabank branch footprint, with noncommunity banks shrinking by 384 offices between June 2017 and June 2018 while community banks added more than 700 over the same period. The largest financial institutions themselves have reported that community banks are more than tripling the deposit growth of their larger competitors in rural communities.

These divergent trends build on the disparate responses to the Wall Street financial crisis, when community banks increased lending to consumers and small businesses while megabanks closed off access to credit. Meanwhile, community banks—the only physical banking presence for more than one in three U.S. counties, according to ICBA data—continue to make roughly 60 percent of small-business loans under $1 million and 80 percent of the banking sector’s agricultural loans.

Unlike the megabanks, community banks are not fair-weather lenders. We stick with our borrowers in good times and bad because we are rooted in the communities we serve. Community banks have always served rural communities, and always will, because these communities are home for many of us. Serving our communities is deeply personal to us.

And our business model has proven its strength and relevance for more than a century. Relationships matter, and that will never change. Because it’s times like these when customers need someone to count on.

Community bankers: let's keep up the good work in serving our customers and meeting the needs of our communities, even when the going gets tough. The results speak for themselves. It’s time more customers—especially those whose banking services have been disrupted by this move—see the community banking difference for themselves. They certainly will be glad they did.

Rebeca Romero Rainey is ICBA president and CEO.