An article published recently in Texas Tech Today addresses the tremendous need for community banking and notes the recent high volume of Paycheck Protection Program loans that were processed by community banks as one example of the importance of these financial institutions. The September 2 article by Glenys Young, titled “Researchers Warn Community Banks Are 'Dying Out' Just When Needed Most,” notes that analysis of PPP loans “highlights the importance of ‘relationship banks’ in smaller communities.” But while community banks have shined this year in their efforts to save struggling small businesses, “the number of community banks is dwindling and a growing number of financial experts are sounding the alarm,” according to the article.
"I almost feel like the canary in the coal mine here," Drew B. Winters, a professor and the Lucille and Raymond Pickering chair in finance in the Jerry S. Rawls College of Business at Texas Tech University, says in the article. "My dad's a banker and I worked for a bank. When I started in academia in 1990, there were about 15,000 banks in the country. Now, there are about 5,000—and the big 300 didn't go away. So what did we lose?"
Texas banks were on the rise throughout the 1970s and '80s. That growth peaked in 1986 at 1,969 banks. Today, the state of Texas has 496 banks.
"By this time next year, I predict we will be under 450," Mike Mauldin, director of the Excellence in Banking program at Texas Tech University, says in the article. "That's how fast consolidation is happening." Mauldin, the article notes, came to Texas Tech University in fall 2019 as an associate professor of practice following a 42-year career in banking, during which he served as regional chairman, president and CEO of a community bank. Over those four decades, he's witnessed a tremendous change in the numbers of banks in the state.
Ironically, the big banks, Mauldin notes, are not eager to see the community banks die out. "We need banks of all sizes to function," he tells Young. "I've known so many of the guys who run the largest banks in the country and they'll be the first to say we have to have our community bank system."
The piece goes on to outline the reasons for the decline in the number of community banks, including the transition to branch banking and the emergence of out-of-state bank ownership. It also highlights the advantages of community banking, which, in 2020, have come into much clearer focus with the deployment of the CARES Act in response to the COVID pandemic.