Community banks and large banks offer many of the same financial products and services, including checking accounts, savings accounts, online banking, personal and business loans, debit and credit cards, ATMs, home loans, and more. However, there are several differences between the two types of financial companies. Here are some of the key ones:

Community banks

  • Typically owned by people in the communities they serve
  • Can either be publicly or privately owned
  • Small to medium-sized
  • Depositors live and conduct business in the communities where they’re located
  • Typically charge lower fees than big banks
  • More likely to make loans to local residents and businesses
  • Has a complete understanding of a community’s financial needs and circumstances.
  • Run under the banner of the Independent Community Bankers of America (ICBA), a small banking industry trade group

Large banks

  • Typically owned by shareholders, generally institutional investors
  • Always publicly owned
  • Large-sized independent organizations like JPMorgan Chase or U.S. Bank
  • Customers are usually big American or global businesses and relatively affluent individuals
  • Typically focused on lending to corporations rather than individuals or smaller businesses

Both community and large banks operate as for-profit businesses, although community banks are usually less focused on their bottom lines, balancing their need to be profitable with how they serve their communities.

Another commonality: Deposits for small and large banks are backed by the Federal Deposit Insurance Corporation (FDIC) up to certain limits.

Let’s look at these two types of financial service providers in greater detail.

Community banks: The basics

Community banks were some of the unsung heroes of the coronavirus pandemic. They helped small business borrowers secure life-saving PPP loans. They financed the purchase of first and larger homes for people who required new shelter during the crisis. Local banks supported commercial real estate owners in their areas negatively impacted by lockdown orders. 

Like other industries, the pandemic accelerated a significant — and extremely overdue — digital transformation for many banks. For most community banks, new customers could not open bank accounts or apply for loans until they updated how they operated and interacted with customers by implementing new technology. Personal and business customers could not communicate with bankers remotely until the pandemic forced video meetings via Zoom and other similar platforms. Local banks jumped into the future because they had to. Today they’re still working through the tech changes the pandemic forced to deliver an optimal customer experience that’s on par — or better than — those of larger competitors.   

Community Banks: The Benefits

Community banks are closely tied to the regions they serve. They provide highly personalized, relationship-based banking services. Community banks invest money locally in properties and businesses to help keep their communities economically healthy now and for future generations.

Community banks support local startups and existing small businesses. They also provide most agricultural loan funding. They contribute tax dollars that help maintain local schools and other services.

Some common traits of smaller banks are:

Local banks are built through their ties to the community. Regional banks have symbiotic relationships with their communities. One cannot survive without the other.

  • Community banks are more likely to lend based on relationships. They take time to get to know their individual and business customers and make lending and other decisions based partially on personal knowledge and information. By contrast, commercial banks typically make loan decisions based exclusively on credit scores and financial information.
  • Community banks understand and support local businesses. They cannot survive without the regional companies that rely on them. They’re more likely to make accommodations for startups, struggling companies, and to help businesses make it through challenging times.
  • Local banks give back to their communities. Supporting critical community services is a vital function of local banks. They invest in things like schools, regional cultural institutions, and sports teams to help keep their areas strong.

Regional banks and credit unions are beneficial to the people and businesses in their communities and depend on them for their livelihoods and financial viability.

Local banks are built through their ties to the community

Community banks: Their challenges

Local banks also face some unique issues.

They are so closely tied to their geographic areas that they can be left financially vulnerable if a crisis impacts the local economy, such as a significant company scaling back or leaving the area. This was partly the reason for recent bank failures in California. Tech businesses in the state contracted, squeezing bank profits, and forcing them out of business. (The good news is that deposits were FDIC-insured up to certain limits, protecting individual bank customers.)

Local bankers can combat this challenge by forging close relationships with business owners in their regions. They must also support diverse startups that can take the place of businesses that age out or fail, which is a constant reality in these changing times.

Local community banks often find it costly and challenging to provide all the product offerings and services big financial companies can. They can counter this by getting to know their customers and focusing their offerings on what people and businesses in their local areas want and need, preventing them from spreading themselves too thin and becoming unprofitable.

Another challenge community banks face is related to their move to digital solutions. It’s reduced bank branch traffic, forcing them to address what to do with their banking locations. Plus, it’s cut the need for back-office space, as well, creating another real-estate-related issue. Banks must be mindful of reducing their physical footprints without causing a real estate crisis in their local markets.

Community banks also face pressure from neo banks and other fintech upstarts that are bifurcating financial services. They face competition from large companies like Amazon, Apple, and Walmart expanding beyond their core operations. Plus, they face regulatory burdens that may be more demanding on them than their better-staffed larger competitors. They must also address the challenge of generational shifts and changing business and individual consumer preferences.

Small financial companies can also lag in technology, which makes them less attractive to both personal and business customers, especially in today’s time of significant digital growth and expansion. All customers today expect a smooth and seamless banking experience, even from the smallest companies. The issue: It can be almost impossible for them to develop all the tech their larger counterparts can.

The good news: Smaller financial companies can stay competitive with their larger counterparts by taking advantage of some of the excellent, customizable, and affordable out-of-the-box solutions available today.

A great example is Biz2X. It’s an excellent technology that completely automates the business loan process. It makes applying for, evaluating, approving, and servicing small business loans fast and efficient. It allows smaller lenders to stay competitive with their bigger counterparts, offering the same — or even better — customer experience. It makes it more efficient to process and service loans, helping boost bottom-line profitability for the financial companies communities depend on.

Large banks: The basics

Big banks are large national or international organizations that typically serve the needs of larger businesses and prosperous individuals. They usually offer a broad range of financial solutions to meet the needs of a wide customer base. They employ a significant amount of technology to run their national or global operations.

The bottom line for large global and U.S. banks is to turn a profit so they can maximize returns for Wall Street and their shareholders.

Large banks: The benefits

Larger banks can serve the needs of most individuals and business customers. However, they are usually best for big companies and wealthier clients who can afford the higher fees associated with doing business with them. They’re ideal for those who operate businesses and live their lives on the national or global stage. 

Large banks: The challenges

While large national banks can seem like powerhouses, they often find themselves vulnerable when the U.S. or global economic situation changes. For instance, recent interest rate increases by the Federal Reserve Bank put stress on many institutions that had invested their money in line with the long period of low-interest rates we experienced over the last decade. Some recent large bank failures have been traced back to this issue.

In addition, the larger end of the banking industry is a cut-throat one. Banks that don’t keep up by offering all the products and services their customers want will lose business to their more cutting-edge competitors. Similar to small institutions, big banks also find themselves competing with FinTechs and other non-traditional banks that are edging into the industry.

Ultimately, most well-run big banks will continue to survive, thrive, and serve their customers. Those that are poorly run could find themselves vulnerable.


Community and large financial companies provide different benefits and face common and unique challenges in today’s changing economy and business climate.

Smaller banks and credit unions are ideal for serving people and businesses in their local communities. They must stay nimble and current with their products and services and the technology that backs their operations.

Big financial institutions are ideal for serving large corporations and wealthier customers who need a vast array of banking products and services on a national and global level. The most significant risks they face are related to large-scale economic changes, not staying current with their product and service offerings, and making poor investment and management decisions.

In the end, both large and small banks serve a valid purpose in today’s world of financial services. If they’re properly managed and stay current by meeting the needs and expectations of their client bases, both should continue to survive and thrive long into the future.