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  • Writer's pictureGeorge Cook

A Brief History of Community Banking

Updated: Jun 17, 2021

Way back in 1889 my family started a small, community bank in Somerset, a quaint little town tucked away in the Laurel Highlands of southwestern Pennsylvania. For some context, at that time, there were roughly 63 million people in the United States and approximately 11,000 banks to serve them. Fast forward to 2017 and our population has exploded to more than 320 million yet the number of banks has plummeted to less than 5,000 nationwide, fewer than half the number of banks we had 125 years ago!

Outside the building of Somerset Trust Company's original headquarters

Somerset Trust Company’s original headquarters, recently renovated by the bank which celebrated its 125th anniversary in 2014

Over the decades, the number of banks in the United States has ebbed and flowed based on the health of the economy, the regulatory landscape, and other economic factors. However, the trend since the 1980s has been as consistent as it has been dramatic – a 65% decrease in the number of banks in the U.S., the overwhelming majority of which were small, community banks.

65% Decrease

Graph showing the 65% decrease in the number of banks in the U.S. from 1984 to 2017

Source: Federal Reserve Bank of St. Louis -

The latest wave of bank consolidation has been attributed to a number of factors including stricter regulation. These changes have mostly favored large banks who have fully staffed legal departments and can afford to make wholesale changes to their underwriting operations. Many community banks have either had to sell themselves to larger regional or national banks, or go out of business entirely. While these consolidated national banks are able to more cheaply underwrite loans, we rarely discuss the costs of losing relationship banking.

Small businesses are most adversely affected by bank consolidation. Locally-owned businesses often have limited operating history and rely on the reputation of the owners and managers. Local community bankers evaluated qualitative factors, in addition to traditional quantitative methods, to judge the creditworthiness of a business. But, if lending decisions are no longer made in the community, there is no way to capture these very important qualitative details and business loan requests are, all too often, denied. To make matters worse, traditional banks frequently refuse to make loans smaller than $100,000 whereas a recent Small Business Credit Survey suggests that 70% of small businesses (with less than $1 million in revenue) wanted loans smaller than $100,000.

The growing disconnect between local, Main Street businesses and traditional banks can be disheartening. But, I’m confident that emerging players like Honeycomb will find exciting new ways to use technology to empower small businesses. Together, we can bring community banking back in a scalable way that transforms the communities we call home.

Headshot of George Cook, Co-Founder of Honeycomb Credit

George Cook is the Co-Founder and CEO of Honeycomb. As a sixth-generation community banker, George is passionate about the positive impact that local lending can have on communities. When he’s not trying to fix the U.S. financial services system, George can be found exploring the wonderful neighborhoods and small businesses of Pittsburgh with his wife, Elizabeth.


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