As a rural community bank and U.S. Treasury certified Community Development Financial Institution (CDFI),   Southern is fully aware of the importance of CDFIs in rural markets throughout the country. In our recent paper, Banking in Rural America: Insight from a CDFI, we illustrate why CDFIs like Southern are well-equipped to address the problem of community banks leaving rural communities based on Southern’s recent acquisitions of three banks in different Arkansas markets.

Over the last three decades, more than half of all banks in America have closed. In rural areas, these figures are even greater due to: the depopulation of rural counties; technological advances lessening the need for brick and mortar facilities; lack of succession planning; and increased and adverse regulations of the Dodd-Frank Act, which harms small, local lenders by imposing on them one-size-fits-all financial parameters aimed at big Wall Street banks. However, the most sobering statistic is that of all the bank closures, nearly 96 percent of them have been community banks.

The following examples demonstrate why large numbers of community bank closures, especially in rural areas, are so problematic:

  • According to the U.S. Treasury, community banks and CDFIs made nearly 90 percent of the dollar volume of small-business loans under the State Small Business Credit Initiative (SSBCI). Community banks originated 1,853 loans nationally under the program in 2013, while CDFIs accounted for another 2,008. Large banks, on the other hand, originated only 403 loans. Small business loans are critical for supporting the job creation so many rural communities need.
  • Community banks and CDFIs are proven to increase the social capital of a community. According to the World Bank, social capital refers to how a community’s institutions and relationships shape the quality and quantity of a community’s social interactions. Increasing evidence shows social cohesion is crucial for communities to prosper economically.
  • According to a recent study by Baylor University, local lending to individuals based on relational banking has decreased as rural communities have fewer traditional financial institutions. In addition to reduced relational lending, research shows that loan default rates are higher when borrowers are not in the same geographic market as their lender. That inaccessibility to safe, affordable credit is one of the root causes of why people remain poor.
  • Over 32 percent of Mississippi households and over 25 percent of Arkansas households are using alternative financial services such as payday loans at least some of the time. Small and midsize business loan originations from online lenders, merchant cash advance providers and other alternatives have grown a reported 64 percent in the last four years. The global shadow banking system grew by $5 trillion in 2012, to reach $71 trillion. These high-priced industries strip wealth from people and communities that could otherwise use their resources to promote household financial stability.

As the number of community banks declines in rural markets, so will many of the benefits those banks bring to their communities. CDFIs like Southern are vital to making capitalism work in rural America. Southern has a strong track record of sustainably and effectively serving many of these distressed markets, and to create new economic opportunities for rural Americans, Southern seeks to expand its financial and development services to markets with limited access to non-predatory financial products and services that build long-term wealth. To learn more about our efforts, please contact Meredith Covington, Policy & Communications Manager, at

Wheelock, D. (2012). Too big to fail: The pros and cons of breaking up big banks. The Regional Economist. Federal Reserve Bank of St. Louis. Available at

Federal Deposit Insurance Corporation (FDIC). (2012). FDIC community banking study. Available at

Center for Regional Economic Competitiveness. (2014). Filling the small business lending gap: Lessons from the U.S. Treasury’s State Small Business Credit Initiative (SSBCI) Loan Programs. Department of the Treasury. Available at

World Bank. Available at

DeYoung, R., Glennon, D., Nigro, P., & Spong, K. (2012). Small business lending and social capital: Are rural relationships different?. Center for Banking Excellence, University of Kansas. Available at

Barth, J., Hamilton, P., & Markwardt, D. (2013). Where banks are few, payday lenders thrive: What can be done about costly loans. Milken Institute: Santa Monica, CA. Available at

Federal Deposit Insurance Corporation (FDIC). (2014). 2013 FDIC national survey of unbanked and underbanked households. Washington, DC. Available at

Testimony of Renaud Laplanche before the Subcommittee on Economic Growth, Tax and Capital Access of the Committee on Small Business, United States House of Representatives. December 5, 2013.

Financial Stability Board. (2013). Global shadow banking monitoring report 2013. Available at

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