What’s Ahead The CSBS Annual Survey of Community Banks provides valuable insights into the opportunities and challenges facing the nation’s community banks — insights that are valuable to bankers, their regulators, and the business and academic communities. In addition to the survey, CSBS produces the quarterly Community Bank Sentiment Index, which tracks community bankers’ outlook on the economy. While the results for the third quarter of 2024 marked the first positive reading since the fourth quarter of 2021, the industry faces several headwinds that will keep regulators closely monitoring credit quality, liquidity and overall profitability in the months to come. This article is part of a series titled “Supervising Our Nation’s Financial Institutions.” Scan the QR code to view the other articles in the series. https://www.stlouisfed.org/on-the-economy#srote_ otefreetexttags=supervising%20financial%20institutions half to 32%. Bank-fintech partnerships are most common for services such as mobile banking support, loan origination and underwriting, and other process improvements, including fintech hubs. Although community banks were largely able to keep deposit balances stable in 2024 after a turbulent 2023, stiff competition meant the costs of those deposits — both transaction and non-transaction — spiked. Bankers reported that other community banks are still their primary competitors for transaction (e.g., checking accounts) and non-transaction accounts, but regional and national banks and credit unions have made inroads in competing for transaction accounts. Bankers have relied more on wholesale funding, such as brokered deposits, Federal Home Loan Bank advances, other borrowings and reciprocal deposits, as deposit competition has accelerated and its associated costs have risen over the past 18 months. Stimulus-related deposits from the COVID-19 era are long depleted, and the historical balance between core (mostly deposits) and noncore (largely funding from external sources) has resumed for the community banking industry. In the survey, bankers were asked about the stigma associated with using various external sources of funding. While 40% of respondents said that use of the Federal Reserve’s emergency facilities, such as last year’s Bank Term Funding Program, carried a “high” or “very high” stigma, that percentage dropped to 25% for the Fed’s discount window advances. The Fed has made a number of changes to discount window operations over the past 20 years to lessen stigma, and the federal financial institution regulatory agencies have updated guidance encouraging depository institutions to incorporate the window as part of their contingency plans. Read the updated guidance by scanning the QR code. https://www.federalreserve.gov/newsevents/ pressreleases/files/bcreg20230728a1.pdf The Show-Me Banker Magazine | 31
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