Jeff Judy

Jeff's Thoughts - September 2, 2009

Too Big to Succeed

We have all heard a lot about banks that are "too big to fail" recently. Frankly, it comes up fairly often in my conversations with community bankers, many of whom feel that the inevitable bailout frees up the largest banks to work to lower standards than the smaller institutions. More than one has said to me, "If we ran our business the way they ran theirs, we'd be out of business, and there'd be nobody to save us."

I'm not here to start an argument about fairness in the way banks of different sizes are handled or treated. Rather, let's move on to look at one market where many banks may be too big to succeed.

Small businesses have always been important customers for community banks. They are so important, and, if properly managed, such good customers, that the big banks have repeatedly tried to find ways to poach those customers.

In the short-term, they often succeed. Particularly since they've learned to apply consumer credit scoring strategies to small business credit decisions, some of the largest organizations have been able to drive pricing down to a level that is challenging for community banks to compete against. And those small business owners who are looking for the best price have often been swayed by the great deals the big banks have offered them.

This works well for large organizations as long as they don't have to spend very much time dealing, individually, with a small business. But with the recession and the credit crunch, the rules of the game may have shifted decidedly in favor of community banking.

As the big banks have raised their cutoffs, they have set thresholds that many of their business customers -- the very same small businesses they wooed away from community banks not too long ago -- can no longer meet, even if they have held up relatively well in the economic downturn. At large organizations, where small business lending is driven solely by efficiency, they don't have the time, the people, the knowledge, or the inclination to work with those business customers, evaluating how they are responding to an ugly present and preparing for a better future.

Time spent with the customer distinguishes community banks from the huge national players. With a more individual, rather than statistical, approach, and with an aim to profiting from long-term customer relationships, community banks have huge advantages over the giant banking institutions.

This is a great time to remind your small business customers -- and potential and past customers -- how your approach to serving a small business differs from what has been offered, recently, by the big banks. This is a wonderful opportunity to re-educate your small business customers about how a bank can contribute to their success in more ways than just offering the lowest interest rate.

And it is a particularly good time to go after those small business owners who left you, in recent years, to take advantage of big bank pricing. They are learning, right now, what they gave up to get that lower price. Reintroduce them to your culture of individual customer service, show them how you can help them be more successful, and your relationship with them will be twice as strong as it was before they left your bank.

So don't waste time complaining that all the breaks, during these very tough conditions, have favored the big banks. They are offering up their small-business customers to community banks. This is a chance to establish, and deepen, relationships for small business customers who will remain especially loyal to the banks that take the time to talk to, and to listen to them, as you navigate these challenging times at your customers' sides.