Some observations as I leave community banking

It's been almost two months since I last posted anything. Since then, I've left my previous employer and joined a financial services consulting firm and have just completed my first month. I'm going to focus this post on some final thoughts as I leave the community banking space. So here goes:

- The regulatory environment is making it almost impossible for community banks to survive. In a recent article in The Baltimore Sun, Anita Newcomb, a noted community bank consultant, notes that regulatory changes may make it impossible for banks of less than $500 million in assets to survive. In my opinion, this is too low. I think banks need to be of a sufficient size, at least $1 billion in assets, to have the scale to compete and comply with the requirements.
- The primary competitors for many community banks, credit unions, have an unfair advantage. It used to be that credit unions served very specific groups of constituents, like a single employer for example, providing savings and loan products exclusively to them and enjoying the status of non-profits. Now, many CU's have no such restrictions and yet continue to pay no taxes and a much less stringent regulatory environment.
- I believe one of the biggest challenges they face is one of identity. What does a community bank mean, anyway? For customers, their local branch is their community bank. Just like the local Home Depot. Sure, the name over the door has changed a number of times, but many of the people who've waited on you are still there. And now, with all the electronic delivery options, how many people really need a local branch at all? Open your account, get your direct deposit set up and you are good to go.

With all that said, I do think there is a need for community banks. They need to focus on the value they bring to the community. During the recent financial crisis, many small businesses found themselves scrambling for financing when the large banks abruptly pulled their credit lines. A local banker, with roots in the community, is more inclined to work with these customers because they understand the market and know their customer. It's where having local decision makers can really make a big difference. So let's not write the obituary for the community bank just yet.

Debit Card Fees and the Social Media Backlash

As I discussed in my last post, debit card fees have been a hot topic the last 60 days especially for the big banks. Now we see many of these same banks, including SunTrust and Regions Bank, discontinuing their monthly fees and refunding those customers who had paid in previous months. Today, Bank of America finally conceded and are cancelling their plan for the $5 fee scheduled to start in 2012.

What is so fascinating is how much of an impact social media had on these decisions. For example, there was a young woman in D.C. who started a petition on a website, change.org, to "Tell Bank of America: No $5 Debit Card Fees." She's gathered over 300,000 signatures supporting her cause.

There have been thousands of Twitter comments and blog posts expressing outrage over the proposed fee from BOA. One recent post is a pretty good example (with a Halloween theme): ShooterOneSix "What's difference between a vampire & Bank of America? The vampire is only after your blood while BoA wants to suck your CASH too!#ows #p2." It has even spawned a Bank Transfer Day on November 5th when big bank customers are encouraged to move their accounts to a local credit union. Again, this has been spread through social media channels with incredible velocity.

So what's the lesson here? There are many, of course. One that immediately comes to mind is think before you act. While it may sound good sitting around a boardroom and crunching the numbers, this plan should never had made the light of day. If these banks had engaged their customers in a dialogue beforehand, I'm quite sure they would have seen the negative impact immediately. Remember, social media is a two way street. Now they have yet another publicity nightmare to clean up.