Mar 022011

Moebs Services ( released the findings of their research (  on March 1 indicating predicting a “a fundamental consumer-shift … in the banking sector,” represented by a “… move of about 13,000,000 checking accounts to community banks and credit unions by the end of 2011.”  In addition, Mike Moebs, economist and CEO of Moebs Services predicts that although “It costs about $300 on a fully absorbed cost basis to operate a checking account, and with fees falling below these costs, the average checking account at a Wall Street bank is unprofitable.”  But “Because Main Street financial institutions can operate below the $300 cost level, they can turn a profit, and will continue to take market share away from the larger banks.”

We are unsure…

Community Banks – defined as Banks with assets less than $5 billion – control approximately 30% of the roughly 1 billion Transaction Accounts held by FDIC Insured Institutions.

In 2010, Community Banks won 18 million new Transaction Accounts representing approximately 30% of all new Transaction accounts opened by FDIC Insured Banks.  These 18 million new Transaction Accounts represent just 5.7% growth in accounts – with Banks whose assets are less than $1 billion delivering 3.2% growth and Banks with assets between $1 billion and $5 billion delivering 13.2% growth.  We note however, that Banks with assets greater than $5 billion outperformed the Community Bank sector with growth of 5.9%.  Moreover, as a group, Community Banks lost $42 billion of deposits held in Transaction Accounts, whereas Banks with assets greater than $5 billion grew deposits by $245 billion.

Given the tumultuous year that 2010 was for larger banks, it is clear that Community Banks (as a group) failed to take advantage of the opportunity to grow market share and wallet-share.  We believe that reversing the trend established in 2010 will be extremely challenging.  We do not believe that free-checking account promotion will be sufficient to generate meaningful growth for most Community Banks.  However, we do believe that Community Banks have an enormous opportunity to draw highly profitable High Net Worth customers from Super-Regional and Mega-Banks.  Optirate ( is one company that is devoted specifically to helping Community Financial Institutions accomplish this goal.

Serge Milman

Serge Milman is the Principal Partner of San Francisco, CA based SFO Consultants which provides Strategy, Finance and Operations Management Consulting services. He is also the Principal of Optirate – a blog dedicated to growth and profitability strategies for Banks and Credit Unions. Serge can be reached at

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