Regulation, Interest Rates Puts Future Of Community Banks In Question

Locally-owned community banks in North Carolina are on the decline.  Before the recession, it was a different story–community banks were booming here and across the country. The Triad Business Journal's Owen Covington has been looking into the reasons behind the drop and what it means for North Carolina. For this week's Business Report, he tells WFDD's Emily McCord that it may be an industry that is forever changed. 

"There was a finance professor who really summed it up well," says Covington. "When I talked to him about community banks, he was quick to say 'when's the last time you saw that mom-and-pop full-service gas station? You know, where the bell would ring and they come out and check your oil and pump your gas for you. How many of those do you see? That's the future of community banks in North Carolina. They're just not going to be those small, locally-owned institutions anymore that they were in the past.'"

The numbers tell the story, too. Before the recession, there were 19 bank starts from 2006-2008. But not one bank has been chartered since 2009 in the state, which also falls in line with the national trend. Covington says more regulation has made it difficult for new banks to open. 

"At the same time, you've got really low interest rates. That's how start-up banks make their money," Covington explains. "So, if your margin on loans that you make is really small, it's going to take you longer to make money. You're going to have a harder time attracting investors."

"You're seeing fewer larger banks. There's been consolidation in the industry through mergers and acquisitions. So, right now in North Carolina there are fewer banks than there have ever been in history."

He says that means fewer choices for the consumers. But Covington adds that the banks that remain are in a stronger position, and points to Winston-Salem's BB&T as an example of a bank that is playing a broader role regionally. As the economy continues to improve, he says it's likely that more small, locally-owned banks will begin to emerge again, but things will be different. 

"It's not going to return to the way it was. There are not going to be as many banks as there has been traditionally."

The Business Report on 88.5 WFDD is a partnership with the Triad Business Journal.