The growth of smaller banks and credit unions is outpacing the rest of the industry

Small banks often offer more personal service.
(Photo by Stoica Ionela, Unsplash)

As bigger banks consolidate into mega-banks, an opposing trend is emerging -- smaller banks are attracting new customers and deposits. "While the biggest banks are getting bigger, the smallest are growing too. Community banks, which typically have less than $10 billion in assets and a concentrated footprint, grew deposits by about 1% in the third quarter from a year earlier," reports Imani Moise of The Wall Street Journal. "Credit unions grew deposits by a similar amount. Their loan books grew by 10% and 9%, respectively. Both far outpaced the broader banking industry, according to federal data."

Bank customers opting for smaller banks or credit unions find that "making a switch not only gets them more face time with bankers, but they are also earning more and paying less," Moise explains. "People wanting a smaller bank have an ever-smaller number to choose from. Bank mergers are expected to accelerate this year as lenders seek safety in size after a series of regional bank failures in 2023."

The current market has been tough on mid-sized banks, but smaller banks offer local convenience and more personal customer service for consumers and small-business owners. "Even the biggest banks acknowledge that people like to do some banking in person," Moise reports. "PNC plans to add new branches this year after closing more than 200 last year."

Particularly if problems arise, smaller banks have staff available to solve problems in-person. "Laurie Matta, the chief financial officer for the city of Clarksville, Tenn., decided to move the city’s bank accounts from the U.S.’s fifth largest lender, U.S. Bank, after a mix-up during the pandemic," Moise adds. "It took six months and many unsuccessful attempts to get the bank to correct the error, even though it shared an office building with city hall. . . . She moved the accounts in 2022 to Legends Bank, which is down the street."