What kind of credit risk is involved with community banks?

Say you know a guy who runs a community bank with a single branch. He is an integral part of the community and he lends only to the people that live within the community and has been doing it for decades. Is this a sound strategy? Sounds good to me, most banks are community banks and seems pretty easy to keep things in balance (you deposit he lends). What do you think?

1 Answer

  • 1 decade ago
    Best Answer

    That kind of lending, in which a member of the community lends only to people in the community, is extremely rare these days. Most banks only find it efficient to lend on verifiable, objective criteria (personal FICO scores, income verification, real estate appraisals) rather than local knowledge of members of a community.

    If you find a community lender, I'm impressed, because it is a rare phenomenon.

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