The “bankers’ bank” system emerged in the mid-1970s and 1980s as a response to community banks’ dissatisfaction with correspondent services from larger banks.
The Origin Story
For decades, leading up to 1975, community banks relied on correspondent services from larger banks. However, this relationship soured when new federal branching laws allowed those same larger banks to open branches in other states and directly compete for the business of the community banks that they were also serving. Within a noticeably short time, thousands of community banks were facing not just additional industry competition, but that competition came from banks that they themselves were beholden to for services that they needed to remain in business.
Additionally, the question of whether these larger banks, which at the time were new to many rural communities across the U.S., provide the same “hometown” banking services that community banks had been providing for decades. Community banks often have a deep understanding of their local communities and can tailor their products to meet regional needs, fostering local economic growth. In many cases, community banks also function as a source of local expertise and risk mitigation, which provides a more stable foundation for the broader banking system.
Many community bankers leading the charge for a solution look back to this time as not just one of turbulence, but as the time their industry rose to the occasion of reinventing the community banking system. The need was clear: level the competitive playing field with larger, national banks by providing community banks with correspondent services and customized banking solutions from within their own marketplace, preventing the poaching of customers from relationships steeped in conflicts of interest.
Community banking leaders, in a few select states, came together to discuss potential solutions and a path forward. The groundswell started in Minnesota in the early 1970s with the plan of creating a correspondence bank formed as a co-op of sorts, owned by community banks, serving community banks and leaving the competition for customers to the banks themselves in their communities. The problem? Nothing like this existed at the time. It was a new concept in an industry that traditionally did not react well to change.
As one of the founders of the first bankers’ banks in the U.S. said at the time, the steps – “get a charter, fix the rules, make history” – were lofty by anyone’s standards, yet crucial to the community banking industry, which was under attack.
Making History
The time from the forming of the first bankers’ bank to the bankers’ banks of today was one of small business startups – perhaps one of the reasons that community banks are so small business focused; they have all participated in forming something new from the ground up.
The first few bankers’ banks not only had to sell the idea to each other and regulators, raise funds, form a banking charter and open their doors on day one with a banking staff of one or two, a rented space and in many cases a Xerox copier, a lot of red pens and ledger paper. To hear the stories from those startup visionaries, those early days were not for the faint of heart as raising capital, on-the-job progress, solving problems in real time and meeting with community banks for business were part of the day-to-day.
As the first few bankers’ banks paved the way, more states looked to the business model and more bankers’ banks were chartered.
This year and over the next few years, many of the first bankers’ banks are celebrating significant anniversaries, from the first bankers bank, now United Bankers Bank (UBB), to Midwest Independent Bankers’ Bank (MIB). These early bankers’ banks paved the way for others and were instrumental in change and evolving an entire industry.
The Ninth Bankers Bank
This year, Midwest Independent Bankers’ Bank (MIB) celebrated its 40th anniversary, marking a significant milestone in its history. Established in Jefferson City, Missouri, (MIB) became the ninth bankers’ bank in the nation.
Camden Fine served as the original President and CEO of MIB until the spring of 2003 when he resigned, moving on to the ICBA. Leadership of MIB transferred to L.D. McDonald and eventually to Matt Sinnett, who is the current President and CEO.
Today, MIB is one of 13 bankers’ banks, and while they all have their unique startup stories, they also have a shared history of overcoming a threat to their industry, taking action and coming out the other side with a sense of community that speaks to what community banks do on the daily.
Three of MIB’s presidents and CEOs share their insights from the perspective of being part of the movement that made such a contribution to the community banking industry.
Camden Fine
Today, Cam Fine is President and CEO of Calvert Advisors. He is also the former President and CEO of ICBA and instrumental in the startup of MIB.
Q: Bankers’ banks emerged in the 1970s and 1980s when many community banks found that their traditional correspondent banks – often larger national banks – were beginning to compete against them for customers. What were the local market conditions like in 1984, when MIB’s charter was approved?
A: MIB was chartered in Missouri, and the local conditions there were the same as in other states – the operational resources that Missouri community banks relied on for their day-to-day operations became competitors, and not just any competitors – ones with inside knowledge, if you will, making it very difficult for smaller community banks to fairly compete. Leadership from five Missouri community banks formed an organizing committee with the intent of chartering our own bankers’ bank. We were the ninth bankers’ bank in the nation, so we at least had a blueprint to follow and some direction. But again, the concept of a bankers’ bank was new to Missouri. It is important to note that bankers’ banks were the solution to an industry-wide problem, so there were lots of collaborative efforts, especially from those first bankers’ banks that were chartered in their respective states.
Q: MIB’s roots trace right back to MIBA’s convention, which is usually held in September. So, this past September, MIB celebrated 40 years. What makes you most proud of MIB’s growth?
A: Well first, the forming committee worked with input and collaboration with the Missouri Independent Bankers Association (MIBA), and the charter was approved during the time of MIBA’s convention, so it was a great place to announce the charter.
Once the committee had a path forward – well, the path to obtaining a charter – I was hired to raise the funds, shepherd the process through to obtain the charter and run the bankers’ bank once chartered. While I was, at the time, the State Director of Taxation, I didn’t have direct community banking experience, so for me, the learning curve wasn’t a curve. Added to which I was 32 years old, so I also looked very young as I was convincing bank presidents and board members to invest in this very new idea. I was new in my banking career and so were the concept of bankers’ banks, so my banking career and MIB are inextricably linked.
I am really proud of the faith and trust that those early shareholder banks displayed when it came to all the pieces needed to obtain a banking charter, which included raising funds. I literally went door-to-door and pitched leadership much more seasoned in the industry than I was on an idea that had never been done before in Missouri.
To see MIB flourishing as it is now, and serving so many community banks is incredible for me personally, and I feel truly fortunate to have been a part of that. The process certainly was not easy. In fact, right up to the granting of our charter, I was raising capital.
L.D. McDonald
L.D. McDonald was the second President and CEO of MIB, and his years in community banking were instrumental in expanding securities services to the member banks as the next step to MIB’s growth.
Q: When you took the reins at MIB, the bank was entering its ninth or tenth year. What were your goals to grow the bank over the many years of your leadership?
A: In short: steadying the ship. As an organization, we wanted steady growth, which meant a focus on retaining customers, focusing on processes and training staff. To accomplish this, we needed to add more services, and we were able to do that with acquiring First St. Louis Securities, Inc., now First Bankers’ Banc Securities, Inc., with three other bankers’ banks in November of 2006.
Q: You spent the early years of your banking career in community banks, and then as an auditor before your almost two decades at MIB. Your career trajectory started with serving the community to serving community bankers, was there a paradigm shift in how you viewed the industry?
A: Not really, working in community banks and later in a position to serve the community banks is very much the same thing. I believe my time in the community banks gave me a sense of how important community banks are to the communities they serve, so working in a bankers’ bank brought that full circle for me.
Bankers’ Banks are really the best edge that smaller, independent banks have to compete with larger banks and be the lifeforce in so many small and rural communities across the country.
Matt Sinnett
Matt Sinnett is the current President and CEO of MIB. He started his banking career at MIB and has watched its growth over three decades.
Q: You have had a front row seat, so to speak, in the bankers’ bank movement from the beginning to now. What are your thoughts as to the growth and the importance they have to the community banking industry?
A: Well, first, I think it’s important to note that the development of bankers’ banks were a game changer for the industry, and I believe the very formation of these banks – that exist only to serve other banks – have contributed to the success the independent banks that make up the community banking industry. MIB works in collaboration with other bankers’ banks, and together we learn from each other, develop best practices, and share information formally through the Bankers’ Bank Council, and more informally through relationships that have developed over many years.
Q: What are your thoughts about the future of community banks?
A: I believe that there will always be community banks. For a lot of reasons: they fulfill a valuable function within small towns, and they are essential in rural economies where larger, national banks have a challenging time navigating the nuances of small businesses that deal with specialized local and regional concerns. Community banks are vital in maintaining vibrancy in small towns – they create jobs, fund businesses and so on.
With the services that bankers’ banks provide, I think there’s no reason that community banks can’t continue to grow and thrive. I may look at this differently, but while the number of community banking charters is declining, the number of branches and communities being served are holding steady. Yes, it’s a different landscape, but I am optimistic.
Looking Ahead
As Ben Bernanke, Economist and former Chair of the Federal Reserve of the United States put it, “community banks have a critical role in keeping their local economies vibrant and growing by lending to creditworthy borrowers in their regions. They often respond with greater agility to lending requests than their national competitors because of their detailed knowledge of the needs of their customers and their close ties with the communities they serve. Such lending helps foster the economy by allowing businesses to buy new equipment, add workers, or sign contracts for increased trade or services. Those effects are felt at a local level and may appear at first glance to be fairly modest, but when you multiply these effects across the thousands of community banks in the United States, you really see how the lending decisions they make help the broader national economy.”
The development of bankers’ banks in the continued growth of the community banking industry was a turning point that shaped the industry.
