Love your community banker.

• Author: Hambry, John
• Position: FROM WHERE I SIT - Industry overview

There are many people--including customers--who love their community bankers, albeit not as many as in the past. Primarily that's because a number of banks--mostly the large national banks--have disappointed too many customers.

The passion community bankers have for their communities is real. They serve the small- and medium-sized businesses that are at the heart of our great free enterprise system and often serve as the base of employment growth and the cradle of ideas and innovation.

Despite their passion, they are losing the battle for business checking accounts and noninterest fee income--critical to their financial health and as indicators of their response to the needs of businesses. Large national banks have 25 percent of their deposits in noninterest accounts and derive 37 percent of their gross revenue from noninterest income. Community banks have 15 percent in noninterest accounts and derive 22 percent of their gross revenue from noninterest income.

Both the large national and community banks enjoy the checking account monopoly of all banks. The federal Regulation Q currently denies interest payment on business checking balances and other demand deposits, although the recently enacted financial regulation bill calls for interest payment options.

Most savvy community bankers want to build business checking balances and noninterest income. Their initiatives have centered on marketing programs, line of credit offerings, penalty fee increases and the addition of supplemental programs such as remote deposit and automated clearing house (ACH) origination services.

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Business checking at most banks is unimaginative at best and has changed very little over the decades. Banks have developed sweep programs to move excess balances (balances beyond those required to offset checking related services) to overnight interest-bearing instruments. Sweeping provides little income to the bank and fails to capture the potential powerful synergy with business checking that's possible with a more dynamic integrated program. Some community bankers who are aware of possible enhancements have been constrained by technical limitations, prohibitive costs, reprogramming delays or just the traditional way of doing things.

Not surprisingly, more businesses today demand full value for all funds. Since interest on checking has not been...