Deciphering the differences between regional, community, and national banks

The collapse of Silicon Valley Bank in March 2023 sent ripples throughout the banking system — and the impact of that continues as individuals and businesses consider bank health and staying power when selecting the right banking partner. More specifically, the situation that unfolded with SVB sparked questions about the health of smaller banking institutions: not the big national banking powerhouses, but the smaller regional and community banks.

The U.S. has a unique banking ecosystem consisting of about 4,200 chartered banks and another 4,700 credit unions. (For context, Canada has about 80 banks.) Regional and community banks play an important role in their communities. And while there are important distinctions between these smaller banks and their too-big-to-fail counterparts, there are also a lot of important similarities. For example, regional and community banks benefit from the same FDIC insurance that protects cash deposits, and these banks, by and large, operate in a safe and sound manner.

Here, we dig into some of the specifics around regional and community banks — what sets them apart from national banks, what differentiates them from one another, and what unique qualities they have to offer within the broader banking system.

Asset size and bank classification

Banks are largely classified and differentiated by their asset size, information that is publicly available on the FDIC’s website.

Community Banks are defined by the Federal Reserve as banks with less than $10 billion in assets. The U.S. is overwhelmingly comprised of community banks. The vast majority of banks in the U.S. are community banks — 97% as of Q2 2023, according to FDIC call reports.

By contrast, regional banks have assets between $10 billion and $100 billion — they’re what you might consider mid-size banks regional banks, sitting in between smaller community banks and big national banks.

National banks tend to be even larger, with some of the largest banks in the U.S. having assets in the trillions. That said, national banks are an exception to the asset-based classification, as they’re not defined solely by their asset size but instead by a national charter with the Office of the Comptroller of the Currency (OCC) instead of a state charter. So, for example, a bank with $90 billion in assets but chartered with the OCC would be considered a national bank.

If you look at the breakdown of community, regional, and national banks based on the amount of money they control, most recent data from the Federal Reserve shows community banks control $3.2 trillion in assets, regional banks control just under $3.1 trillion in total assets, and national banks control the vast majority of assets at $16 trillion.

Comparing their geographic footprint, community banks have, on average, six or seven branches, while regional banks usually have closer to 100. National banks, on the other hand, have upwards of 1000 branches across the country.

Banks are also rapidly consolidating. In 2016, there were more than 5,000 banks in the U.S. Community banks have been consolidating — often with each other — to pool their resources and form larger banks (though often still categorized as community banks).

Commonalities between regional, community, and national banks

Most banks within the U.S. offer the same core products: deposit accounts (checking, savings, and money market), credit cards, and loans. They enable money movement through ACH transfers and international wires, amongst other payment rails.

All banks carry the same FDIC insurance, which is $250,000 per depositor per account. Banks of different sizes can also participate in a sweep network, which allows customers to access higher FDIC insurance limits by opting into a sweep program that spreads deposits among several FDIC-insured accounts. This feature is one that is rarely necessary for the average consumer but comes into play for business bank accounts, for example, where a company is likely to have over $250,000 in deposits at any given time.

Differences between regional, community, and national banks

Based strictly on asset size, a smaller regional bank and a larger community bank may be very similar. So might a large regional bank and a small national bank. They’re far, far different from the large “money center” banks in the U.S. — those with thousands of branches and even an international presence.

Regional banks are more likely to offer investment and insurance products than community banks, as well as more sophisticated business banking services. A benefit of regional banks is that they mostly offer everything you might find at a national bank but come with more of a personalized experience due to their midsize scale. This might include more 1:1 attention from the banking team, for example, or more specialized expertise in your industry.

While community banks don’t always have the same robust suite of offerings, they often shine when it comes to niche products and services. They understand the needs of local business owners, the market conditions, demographics, and other factors. And they’re quite good at this: community banks only have 15% of the overall loan volume in the U.S., but have originated 36% of the small business loans and 70% of agricultural loans, according to the FDIC.

It has also been more and more common in recent years for regional and community banks to partner with fintech companies to deliver more bespoke banking services that include an expanded product offering, personalized services, and a more seamless digital experience to customers. With these partnerships, community banks expand beyond their geographical footprint and appeal to a broader group of customers.

Are smaller regional and community banks safe compared to national banks?

While national banks carry a sense of comfort in their too-big-to-fail status, community and regional banks aren’t inherently any less safe than larger national banks. Again, when it comes to the safety of deposits, regional and community banks are like national banks in that each account will be insured up to the FDIC limit of $250,000, with increased coverage in the event of a sweep network.

Where things do differ is in legal regulation surrounding banks: National banks have historically been held to stricter capital requirements (e.g., maintaining a tier 1 capital ratio of 6 percent), and that heightened level of regulation has often translated to these institutions feeling more secure.

Recently though — and specifically in the wake of SVB’s collapse and subsequent bank failures — regulators have taken steps to create more standardized risk models within the banking industry while creating more buttoned-up capital requirements for banks with at least $100 billion in assets. For example, regional banks would have to issue greater debt and establish more robust living wills (i.e., resolution plans that take effect in the event of a bank failure).

When looking to choose the right bank account for your company, it can help to get a better understanding of the banking landscape and the differences between options out there, from the do-it-all national banks to the fintech players that partner with smaller banks to deliver more niche or personalized banking services. Learning to decode the banking system and understand how different types of banks and banking platforms compare allows you to determine things like whether a potential partner understands your needs, offers the right products/features to help you succeed, and creates a safe way to store and move your money.