FDIC Chair Says Community Banks are the Backbone of SMB Lending

In a Bipartisan Policy Center forum, outgoing FDIC Chairperson Jelena McWilliams spoke on the future of small business lending post-pandemic. According to her, the future of the industry isn’t in brokering different types of products, but rather merchants relying on community banks to develop and provide interpersonal relationships with businesses who are seeking access to capital. 

“Small business lending, which is especially important to community banks, will continue to grow,” said McWilliams. “We monitor these developments through our call report data, and we report it on a quarterly basis. Community banks are a real player in the small business lending space. They are a key resource to small businesses needing credit, they are in a niche area. In most cases, they are more successful lending to small businesses than larger banks.”

McWilliams referenced a study that was published by the FDIC in 2020 dubbed the ‘FDIC Community Banking Study’ that found community banks were playing a much larger role in small business lending than larger banks. According to the study that McWilliams referenced, 36% of small business loans are written by community banks; more than double their share of the industry’s total loan products, which is around 15%. 

It seems to show that the belief of regulators is that smaller banks can leverage their size to put a face to the loan. Speaking about fintech and its impact on the lending space, McWilliams stressed that a well-rounded financial product has to have a face to it.

“That personal touch community banks bring to the table is what allows them to be really good in this space, and to actually expand relationships between banks and borrowers. So I think that small business lending today I think they are in a very good place.”

McWilliams concluded her comments on the state of small business lending in a reflection of the overall economy, drawing a connection between the financial health of small businesses and the overall economy post-pandemic. 

“Of course, you can never have enough credit or capital to have a vibrant economy and more is better as long as its safe and sound and underwritten well, but I would say that for all the concerns we had at the beginning of the pandemic with so many small businesses not being able to survive and shutting their doors down, we are actually on a really good trajectory in small business lending at this point in time.”