Posts in bank resources
The size of your bank reveals a lot more than you might think (part II)
 

In a previous post, we wrote how the size of your bank reveals a lot more than you might think. (TLDR: Want to work with a bank that focuses on communities? The data is in: consider the smaller ones.)

In this follow-up blog post, we take a closer look at the range of ways in which banks make community investments.

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Before we get started, let’s remember what banks are designed to do

By design, banks are tools for community investment: they pool community cash in order to fund community projects.

People put money into bank accounts. This cash then supports people to take out loans — to buy a building for their small business, or to buy machinery to improve their farm operations, or to update their home, for example. People with a loan pay interest back to the bank, in addition to the amount they borrowed. A bit of this interest goes to the people depositing money into bank accounts, and the rest of the interest goes to the bank.

(Imagine if someone asked you to hold onto their money for a while…and then imagine if hundreds or thousands more people asked you to do this. You’d have a decent chunk of cash under your control… what a business model! This is banking. So how are you picking who is holding onto your money… and what the heck are they doing with it?)

This sort of community financing — loans from a bank — is a relatively inexpensive source of funding when compared to other sources of funding, like private equity (in which other people take an ownership stake in the business or farm or house) or credit card financing or payday loans, for which interest rates are often much higher than what a bank can offer. Banks can offer relatively inexpensive loans because the cost of their main source of funding — the money people store away in bank accounts — is nominal if not nearly free versus other forms of capital (the cost of deposits for a bank is whatever banks pay you in interest, plus the cost to manage your account, like giving you monthly statements and making sure someone is available to take your call or answer your questions, if you have them, and the cost of bringing you to the bank in the first place, via marketing or sales).

Because loans from a bank are a relatively inexpensive form of capital versus other financing options, the availability of bank financing for communities is really important. Without it, communities need to pay more for cash… or go without cash… both of which means less maintenance and growth for communities.

Let’s take a look at the varying degrees to which different banks make different community investments

Community investments are loans to businesses (small and large), loans to farms (small and large), loans for housing and construction, financing for public works (like roads and bridges and parks), and loans for households (like loans to buy a car or pay for college).

Banks put anywhere from 0% to 97% of the money in the bank into community investments. It’s a large range. The other 3%-100% of money in the bank not put into community financing is put into financial markets, toward transactions abroad, and into bank operations.

Community investments are generally diversified, so you won’t find a bank putting 97% of the money in the bank into any one community activity, like small business loans. Rather, you’ll see banks putting a fraction of money into small business loans, and some into housing loans, and some into public works financing, and so forth.

Below is a chart of how the thousands of banks within the US banking industry invest in different community activities, from those that do the least (those in the bottom 1 percentile) to those that do the most (those in the 99th percentile.) To summarize: 99% of banks in the US put anywhere between 0% and 75% of the money in the bank into housing loans; anywhere from 0% to 68% of money into business loans; anywhere from 0% to 60% of money into farm loans; anywhere from 0% to 38% of money into public works financing; and anywhere from 0% to 17% of money into construction loans.

The share of money in the bank that banks invest in communities, from the bottom 1% of banks to those in the 99th percentile

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

These ranges exist for a few reasons: (1) banks are structured to finance different things, (2) that may be influenced by local market demands (banks in rural areas are more likely to do farm lending than those in urban areas, for example), and (3) lending activities reflect the priorities of the bank’s leadership.

The size of the bank can be your starting point to understand what the bank is structured to do.

Note: not all banks are focused on making community investments as the main part of their business

Several dozen banks in the US — about 1% of banks — have more than $50 billion in the bank. The other 99% of banks — several thousand — have less than $50 billion in the bank.

As you can see in the graph below, more than 50% of the money in banks with more than $50 billion is invested in something other than communities (as stated above, these other activities include financial markets, investments outside the US, and bank operations).

Banks with less than $50 billion in the bank put the majority of their dollars into communities, on average.

The average share of money in the bank that banks of different sizes invest into something other than communities

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

So with this context — banks with under $50 billion in the bank on average put the majority of dollars in the bank into communities, while banks with more than $50 billion, on average, do not — let’s take a deeper look at the particular areas of community financing done by different banks.

The range of small business lending by banks within the US

A small business loan is defined as a loan to a business for $1 million or less. Across the bank industry, banks put anywhere between 0% to 38% of the money in the bank into small business loans.

The smaller the bank, the more likely it is, on average, to be specialized in financing small business.  

The average share of money in the bank that banks of different sizes put into small business loans

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

The smallest banks -- those with less than $250 million in the bank -- put on average 14% of the money in the bank into small business loans.

The largest banks -- those with more than $1 trillion in the bank -- put on average 1% of the money in the bank into small business loans.

What does this mean for you and your bank account?

This means that if you put your money in a bank account with a smaller bank rather than a larger bank, you on average may create 14 times more community funding for small businesses with your money.

How?

A good way to think about this is how a bank uses $10,000, for example.

According to the chart above, a bank with less than $250 million in the bank is, on average, going to invest 14% of that $10,000 into small business loans. A larger bank — one with more than $1 trillion in the bank — will only invest 1% into making small business loans.

So if you put $10,000 in a bank account with a smaller bank, the bank may put 14% of it into small businesses, while the largest banks may only put 1% of it into small business loans.

This may sound surprising at first -- large banks have so much money, you’ll say… even 1% of a large bank’s money is a lot of money, you’ll rationalize… and you’d be right. 1% of a trillion dollars is more than 14% of $250 million. But that doesn’t change the fact that there are bank accounts available to you where your money would be creating 14 times more financing for small business, in result of your banking decision.

The range of large business lending by banks within the US

A large business loan is defined as a loan to a business for more than $1 million. Across the bank industry, banks put anywhere between 0% to 51% of total dollars in the bank into large business loans.

While the smallest banks lead the bank industry in their focus to finance small business, mid-sized banks with with $1 billion to $50 billion in the bank lead the industry, on average, in their focus to finance large business loans.

The average share of money in the bank that banks of different sizes put into large business loans

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

If you put $10,000 in a bank account with a mid-sized bank, the bank may on average put 24% of it into large business loans, while the smallest banks may on average put 6% of it or less into loans for large business.

If you’re looking for a large business loan, or are interested in supporting banks making large business loans, you might want to check out mid-sized banks.

Banks financing small farms

Loans to small farms are defined as farm loans under $500,000. 98% of banks put anywhere between 0% to 41% of the money in the bank into making loans for small farms. 

Just like they lead the bank industry for their focus in making small business loans, small banks also lead the industry, on average, for their focus in small farm lending.  


The average share of money in the bank that banks of different sizes invest into small farm lending

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

The smallest banks in the US allocate, on average, 9% of the money in the bank for small farm lending. The largest banks in the US on average allocate less than 1% of the money in the bank for small farm lending.

When you bank your money with a small bank versus a large bank, up to 9x more of your money, on average, can support small farms. 

Banks financing large farms

Loans to large farms are defined as farm loans for more than $500,000. 98% of banks put anywhere between 0% to 34% of money in the bank into loans for large farms. 

Surprisingly, it is the smallest banks, on average, which lead the bank industry in small farm lending, that also lead the bank industry in making large farm loans.

The average share of money in the bank that banks of different sizes put into large farm loans

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

One reason smallest banks lead larger banks in their large farm lending focus may be that smaller banks are more likely to be headquartered in rural areas versus larger banks and, as outlined above, the local market in which the bank is headquartered contributes to the focus of the bank.

Banks financing housing

Housing loans are defined as loans for residential properties. 98% of banks put anywhere between 0% to 75% of the money in the bank into home lending. 

Smaller banks are more focused on financing home ownership than the largest banks in the country.

The average share of money in the bank that banks of different sizes put into lending for housing

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

When thinking about supporting banks that focus on financing home ownership, another relevant data point worth considering is if the bank keeps the home loans on its books, or sells the loan. Banks that make home loans and hold them, versus banks that make home loans and sell them, can be thought of as having a longer-term relationship with its borrowers, and hence a longer-term stake in the value of the communities in which their borrowers live.

Banks financing public works

Public works financing is loans and securities for local government to fund schools, water & sewer systems, roads, airports, rapid transit, athletic stadiums, and general cash flow needs. 98% of banks put anywhere between 0% to 38% of the money in the bank into financing for public works. 

The smaller the bank, the more likely it is, on average, to finance public works.

The average share of money in the bank that banks of different sizes put into public works financing

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

On the whole, the overall trend of bank financing for public works parallels that of small business and farm lending: the share of dollars in the bank dedicated to public works steadily increases as bank size decreases.

The smallest banks, an average, put 8% of the money in the bank into public works, while banks with more than $50 billion put on average 1% to 2% toward public works.

Banks financing construction

Construction loans are defined as loans for land development, and other land loans. 98% of banks put anywhere between 0% to 17% of money in the bank into making loans for construction. 

Banks in the $500 million - $1 billion range lead the industry in focus for financing construction loans, and the smallest banks are on average 4x more likely to finance construction lending than the largest banks.

The average share of money in the bank that banks of different sizes put into construction loans

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

Finally, let’s look at household lending.

Banks financing households

Household loans are defined as automobile loans and other consumer loans, including student loans and loans for personal expenditures like medical expenses and appliances. 98% of banks put anywhere between 0% to 23% of the money in the bank into lending to households. 

The larger banks — though not the biggest of banks — tend to lead the market in financing loans for household use at 3x the rate of the smallest banks.  

The average share of money in the bank that banks of different sizes put into lending for households

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

In summary

Most banks do a bit of everything. 

Over 90% of banks put the majority of dollars in the bank into financing communities. The largest banks tend not to.

The smallest banks in the US, on average, lead the banking industry in their focus for financing small business, small and large farms, and public works (schools, bridges, roads, and other cash needs for local governments).

Mid-sized banks in the US, on average, are the most likely to fund large business loans, housing, and construction.

The largest banks in the US, on average, do not lead the bank industry on any community investment category when looked at as a percent of total dollars in the bank: apples-to-apples and dollar-to-dollar versus other banks.

….

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The power of different banks in different cities
 
 

There are several ways to assess power, and most of them boil down to who’s got the most money, and/or who’s got the most people supporting them (who collectively have money).

Banks have power to the degree people put their money in them.

Banks have power to the degree people put their money in them.

Banks publicly report how much money people deposit in their bank (in the form of checking, savings, CDs, and money market accounts), and how many accounts they have.

So let’s take a look at the banks in each of four metropolitan areas -- the Chicago metro, the New York City metro, the San Francisco metro, and the Washington DC metro -- and the sum of money people choose to deposit with them.

There’s a lot of money in deposit accounts in New York City bank branches.

Bank branches in the New York City metropolitan area have more money in deposit accounts than in all of the bank branches in the Chicago, San Francisco, and the Washington DC metro areas combined.

The New York City metro area has 201 banks -- about 10 banks for every 100,000 residents -- with $1.8 trillion put in deposit accounts within NYC area branches. This is $89,000 in bank deposits, per capita.

Number of banks in each metro, and the amount of money ($ billions) in bank deposits in all the branches within the metro. Banks in metro area defined as banks with an office or branch in area. Source: FDIC Deposit Market Share Report, June 2018. Deposit dollars data source: FDIC Summary of Deposits Survey, June 2018.

The next closest city with the most banks and money in them is Chicago. There are 189 different banks in the Chicago metro area. This is 20 banks or so for every 100,000 residents, more banks per capita than the other cities on our list. People collectively hold $398 billion in checking, savings, CD and money market accounts within Chicago area bank branches. This is about $42,000 for every Chicago resident.

Chicago has more banks per capita.

Number of banks in each metro area for every 100,000 residents, and money on deposit in all banks in the area, per capita. Bank location source: FDIC Deposit Market Share Report, June 2018. Deposit dollars data source: FDIC Summary of Deposits Survey, 2018.

San Francisco bank branches have more money in their deposit accounts per capita than those in Chicago or DC. People living in the San Francisco metro area have about 15 banks per 100,000 people, or 69 total banks. There is about $79,000 in checking, savings, CD, and money market accounts in bank branches in the San Francisco area, per capita.

In the Washington DC metro area, 77 banks -- about 13 for every 100,000 residents -- held $256 billion on deposit in bank branches: about $41,000 per capita.

Money in deposit accounts can come from people and organizations near and far.

The money in any given city’s network of banks can come from people and businesses located across the country, and not just from those residing in the city.   

For example, let’s say you live in Seattle. If you bank with a bank solely located in Chicago, your money is in Chicago. If you bank with a national bank, your money may be wherever in the country the bank has an office and chooses to put your money, whether that be Seattle or New York City or Sioux Falls, South Dakota. If you bank with an online bank, chances are the online part of the business is a digital storefront to a brick-and-mortar bank that manages the deposit part of the business, and your money’s at work in the place(s) where that bank works.

The geographic location of a bank’s deposits is important, because banks generally finance communities proportionate to where they have branches and the amount of deposits in them. (There’s a law called the Community Reinvestment Act that encourages banks to do just this.)

So take a look at where a bank concentrates its deposits to have some context about where and how a bank is focusing its financing.

(Pro tip: If you want your money to support a particular community, browse banks that have their deposits concentrated there.)

For example: Southern Bancorp accepts deposits from across the country. Because banks generally finance communities proportionate to where they have branches and the amount of deposits in them, Southern focuses the majority of its community financing in the Mississippi Delta.

Map shows where deposits with Southern Bancorp are at work, by county. Data source: FDIC Summary of Deposits Survey, 2018.

A few banks dominate in major metropolitan markets.

Of all of the money that lands in deposit accounts in Chicago, 22% is deposited with JP Morgan Chase. That’s a sizeable amount of money from people and businesses in a city controlled by a single bank.  

But not as much as New York City, where Chase also controls more money than any other bank in the metro, with 32% of deposits, locally.

In San Francisco, it’s a similar story to New York, but this time, headlined by a different bank: Bank of America controls 32% of money on deposit in San Francisco bank branches.

In the Washington DC metro, E*TRADE Bank controls 17% of deposits.

Among 200 or so banks in each the Chicago and New York City metropolitan areas, JP Morgan Chase has in its Chicago and New York City area branches nearly a fourth and a third, respectively, of all the money in deposit accounts in all of the bank branches in those cities. Bank of America has in its San Francisco area branches a third of all the money in deposit accounts in San Francisco area branches. E-Trade Bank has 17% of all of the money in deposit accounts in the Washington DC area.

The share of total deposits in a metro area held by the bank with the most deposits in its branches. Source: FDIC Deposit Market Share Report, June 2018

Millions of accounts are kept with local banks, the most populous type of bank.

Despite the dominance of the expected market players -- national banks -- in major cities, local banks are meaningful contenders for deposit dollars. (For the purpose of this blog, we’ll define local banks as those that are 100% located within the metro area.)

About 1.9 million accounts are with local banks in the Chicago area. In the New York City area, about 2.6 million accounts are with local banks. There are more than half a million accounts with local banks in the San Francisco area, and over 800,000 with local banks in the DC area.

Number of deposit accounts in local banks (millions). Source: FDIC Deposit Market Share Report, June 2018

Local banks have a larger market share in Chicago and DC areas than they do in NYC and San Francisco areas. All collectively control billions of dollars in each market.

Local banks in the Chicago area control 18% of the money in checking, savings, CD and money market accounts in all bank branches across the Chicago metro area.  

In the New York City area, local banks control 9% of total deposits in the area.

In the San Francisco area, local banks control 4% of total area deposits.

And in DC, local banks are entrusted with a larger share of deposit dollars than local banks in other cities on our list, with 24% of all deposit dollars .

If these numbers seem modest, remember the amount of dollars on the table: 9% of the $1.8 trillion in deposit accounts in the New York City area is $162 billion; 4% of the $371 billion in deposit accounts in the San Francisco area is is nearly $15 billion.

The percentage of total deposits ($) within a city placed in local banks. Data source: FDIC Sumaary of Deposits Survey, 2018.


A bank no longer needs to have a lot of branches to have a lot of deposits.

Taking a look at the ten banks with the most deposits in each metro area, you’ll see that a bank need not have many branches to have a leading share of local deposits.

Bank branches, no doubt, may have mattered in helping a bank become popular in the past. Back in the day, when you had to walk into a branch to do your banking, a bank with a lot of branches was able to attract a large customer base. Today, having a lot of branches in key locations across a city is great advertising, above all else. (Bank branches are an expensive sort of billboard for banks. We say billboard, because many people don’t really walk into bank branches anymore. Rather than cash machines, bank branches are more like the Apple Store, or the Nike store, or any other store that still has a storefront. The storefront helps you remember it’s there. With lots of local locations, a bank might lead you to think it’s locally focused. Though as outlined above, a better indicator of local focus is not the number of branches a bank has, but where the bank concentrates its deposits.)

When finding a bank these days, what's relevant to look at is not necessarily how many branches it has, but whether the bank offers a value proposition that matters to you (like financing Native American equity, or small business in Chicago, or small farms in the Mississippi Delta, or sustainability) and the technology to make banking from anywhere possible (like online account opening and mobile deposits).  

In Chicago and New York, about 50% of the bank branches you bump into are likely to be owned by one of the ten most popular banks. In San Francisco and Washington DC, there’s closer to a 70% chance that any given bank branch you see belongs to one of the ten most popular banks in those cities. This is great advertising. No wonder these banks are top of mind.

Looking for banks online versus on any given street would likely result in a different set of banks making up the most popular banks in a city for people’s deposits.

Where do you bank, and why?

What banks do you support, and why? What’s your money up to?


Mighty helps you find the best banks for your money and values. Browse banks now.

*Deposit data from June 30th, 2018

 

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The size of your bank reveals a lot more than you might think (part I)
 

Banks get a lot of press for being big. Some is seemingly a positive. Some, not so much. And the good of being small? Is there any value to a bank that is small? Read on.

 
It’s not always clear, the importance of size.

It’s not always clear, the importance of size.

Banks get a lot of press for being big.

Some is seemingly a positive: big network of ATMs; big network of bank branches.

Some, not so much: big scandal; big fine; too-big-to-fail.

Whatever the big attribute, if the popular adages ring true (all press is good press and bigger is better), big banks are winning in being top of mind when most people think about banks.

But here’s what doesn’t get as much press: you have a big selection of banks to choose from, many more than you may have ever considered, and there’s a big correlation between the size of a bank and how it uses your money.

The biggest banks in the US (those with more than $1 trillion in assets) put an average of $31 of every $100 in the bank into communities as community investments*, mostly in the form of loans for business, housing, construction, farms, and public works.

And when it comes to smaller banks?

The banks with less than $50 billion in the bank -- 99% of banks in the country --  put an average of $71 of every $100 in the bank into communities as community investments. That’s double the average of the biggest banks.

This means that if Small Bank A and Big Bank B are both working with $10 million in the bank, Small Bank A invests $4 million more into communities than Big Bank B. That’s 40 small business loans of $100,000 each.

Imagine you’re walking down a street where 40 storefronts each received $100K in working capital as a loan, versus another street in which those loans weren’t made.

Which street would you rather stroll on a Saturday? Close to which street would you prefer to own a home? If you like to see storefronts occupied and your property value increasing, we assume you’d vote for the street where the small business loans were made.

Here’s a view of the community investing focus of the bank industry, divided out by bank size.

Average number of dollars that banks of different sizes invest in communities, for every $100 in the bank

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

Dollar for dollar, banks with less than $50 billion in total assets — again, 99% of all banks — put more financing into communities than the 45 or so banks with more than $50 billion in total assets.

Even the smallest banks in the country -- those with less than $250 million in total assets — put more money, dollar for dollar, into communities than banks more than 200 times their size.

Another way to look at this is to consider the 100 individual banks in the US that put more of their total money into community financing than all the rest.  

These banks invest $92 or more of every $100 in their banks into communities. We’ve  charted these banks by bank size, below.

The 100 banks that put the most of their money into community financing, grouped by bank size. Chart shows the percentage of banks in each asset class.

Data Source: Federal Financial Institutions Examination Council, Call Report and Uniform Bank Performance Report. Q1 2019.

None of the top performing community-investing banks have more than $50B in assets.  

How about banks that focus on financing important modern issues, like racial equity?

Banks certified for financing racial equity in the US, grouped by bank size. Chart shows the percentage of banks in each asset class.

Data Source: Federal Deposit Insurance Corporation (FDIC) list of Minority Depository Institutions. Q1 2019.

The US government certifies banks that contribute to the advancement of racial equity both through their ownership and governance structure (banks majority owned and/or governed by people of color) and through their part in serving communities of color.

None of these banks are larger than $50 billion in total assets, and the majority have less than $500M.

For banks focused on financing poverty alleviation, women’s equity, and sustainability, the pattern holds.

Banks focused on financing areas of impact, grouped by bank size. Chart shows the percentage of banks in each asset class.

 

Data source: The Office of the Comptroller of the Currency (OCC) list of women-owned banks; the Global Alliance for Banking on Values list of member banks; the certified B-Corporation directory; the US Department of Treasury list of Community Development Financial Institutions (CDFI). Q1 2019.

Banks certified for their sustainability financing focus are likely to have somewhere between $1 and $10 billion in assets.

All banks in the US certified for their roles in funding poverty alleviation (certified Community Development banks) have less than $10 billion in assets.

Most banks owned by women have less than $250 million in total assets.

To sum it up: Banks that are smaller in size seem to have lending and governance structures that enable them to focus on funding important communities and causes that may otherwise be overlooked by the largest banks as a priority line of business.

If you want your money to finance communities and issues like sustainability and poverty alleviation, the smaller banks are more likely to direct more of your money toward these efforts.

See how your dollars in different banks stack up

*For this analysis, Mighty defined dollars invested into communities as dollars in: small and large business loans, small and large farm loans, household loans (including automobile loans, student loans, and other consumer loans), construction loans, housing loans, and public works loans and securities.


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