Does the San Fernando Valley Need Another Bank? Guest Column: Martin M. Cooper A slow drive down Ventura Boulevard in Encino features more banks than fast-food chains, gas stations or dry cleaners. In fact, there are more than 80 banks, savings and loans, and similar institutions that call themselves banks along the Valley’s main street. To the casual observer, it would seem that the Valley boasts more financial institutions than it needs but the reality is just the opposite. In fact, the state’s bank regulatory agency, the Department of Financial Institutions, informed a group of local area business leaders not too long ago that they consider the Valley one of the most “underbanked” regions of California. The vast majority of the Valley’s banks are headquartered somewhere else. Look at the area’s best-known banking brands: Washington Mutual (Seattle), Bank of America (Charlotte, N.C.), Wells Fargo (San Francisco), California Bank & Trust (subsidiary of Zions Bankcorporation, Salt Lake City), Comerica (Detroit) and U.S. Bank (Minneapolis). Even California banks that sound as if they might be headquartered in the San Fernando Valley, aren’t: Valley Bank (Moreno Valley), Valley Independent Bank (El Centro) and Valley Oaks Bank (Solvang). Gone are such Valley-headquartered institutions as American Pacific State Bank, American West Bank, California United Bank, Independence Bank, TransWorld Bank and Valley Federal Savings. In fact, the only independent community banks actually headquartered in the Valley are Encino State Bank, First Commerce Bank, Western Security Bank and the Bank of Granada Hills. And this in a region of 1.6 million people. Independent community banks meaning those that are headquartered in the community they serve, structured to meet the needs of the local region, managed by financial professionals from the community, and whose boards of directors represent the community are historically a vital part of the nation’s banking system. According to a report prepared by California Research Corp. in February 2000 and focusing on the San Fernando Valley: “Area deposits decreased by approximately 6 percent during the 1994-2000 period. Even more startling than the total deposit decrease, the number of local and smaller independent banking firms has continued to shrink due to a large number of mergers and consolidations in the 1994-2000 period, leaving a large, under-serviced segment of the market.” The report goes on to state that in 1994 there were 15 offices of independent banks in the area, holding 9 percent of local deposits. Six years later, there were just four offices with 3.8 percent of local deposits. So why is a community bank important? Who cares if there are few banks headquartered in the Valley? Does a paucity of local banks really hurt our economy? Here are some of the key reasons for a flourishing system of community banks: With a community bank, depositors and lenders can interact with the bank’s senior management, and often know members of the bank’s board and officers, a distinct advantage in today’s impersonal world. In a community bank, decisions regarding loans (and other important elements of a banking relationship) are made locally, not by a loan committee perhaps thousands of miles away giving thumbs up or down based simply on a written application. Community banks are focused on making smaller loans than are the larger institutions; community banks are designed to meet the needs of small businesses, such as those that are the backbone of the Valley’s economy, while the larger banks target bigger loans to larger companies. When a large banking institution takes in deposits, it disburses them in the form of loans wherever they like; a community business bank reinvests in the local area by lending to local businesses, fostering new jobs and economic growth in the local area. Because they are locally owned and locally managed, community bank leaders are often more attuned to the needs of the local community and play a larger role in its civic and philanthropic affairs. How have community banks done as an investment? Quite well, thank you. In fact, a quick review of the return on investment from banks such as Encino State would show that the initial investors have seen their stock price outperform the markets, and the sale of a community bank often returns well above 10 percent on the initial investment per annum, not counting dividends. What is the prognosis for another Valley-based bank? Most new community banks begin with a strong president/CEO, often one whose job has been merged out of existence. He or she then assembles a small group of local business leaders with credibility, impeccable backgrounds and significant investment wherewithal. But without local business leaders who have the vision to see that a successful local business bank can serve both the community’s interests and their own investment strategies, we are not likely to see another new local financial institution soon. Does the Valley really need another bank? Absolutely. Martin M. Cooper is president of Cooper Communications Inc., Marketing and Public Relations. He has served previously on bank boards of directors and was chairman of the board of Horizon Bank, a new Encino-based bank that was unable to secure necessary funding.