Homegrown Loans

Local banking gives you more bang for your buck

| January-February 2012

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    Image by Flickr user: Images_of_Money / Creative Commons

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Shop local, eat local, travel local. These precepts have enjoyed a grassroots renaissance over the past decade, leading in many cases to healthier food, sturdier products, and more affordable energy. They have also helped communities reduce their carbon footprint and support local businesses and small farmers. According to Stacy Mitchell, writing in YES! Magazine (Fall 2011), banking locally is the next step in smart living, since large financial institutions are geared toward satisfying wealthy customers and corporate accounts, while community-based organizations are more likely to provide small-business loans, factor in hometown economics, and value face-to-face relationships.

The numbers don’t lie. The nation’s 6,900 community banks, which control $1.4 trillion or 11 percent of all bank assets, have $257 billion in loans to small businesses and farms on their books. The nation’s four biggest banks—Bank of America, JP Morgan, Citibank, Wells Fargo—have loaned $85 billion to similarly-­sized lendees, even though these giants control $5.4 trillion or 40 percent of all bank assets. “The only way these sprawling institutions can function efficiently is by taking a mass production approach to lending,” Mitchell says.

To expand local lending capacity, Mitchell proposes that the nation follow the lead of North Dakota, which established a state-owned bank in 1919 in response to populist farmer demand. The state bank partners with community banks to help finance and share loan risk, and small banks in North Dakota are able to loan $12,000 per capita, compared to $3,000 for local banks nationally.

There’s no better time than the present for such a shift, Mitchell argues, since small businesses historically are responsible for two-thirds of new job growth.

Cover-169-thumb.jpgHave something to say? Send a letter to editor@utne.com. This article first appeared in the January-February 2012 issue of Utne Reader.

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