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Strengthening Communities: The Economic Impact of Local Financial Institutions

Over the past few years, shopping local has become a rallying cry for those looking to bolster their own communities. People have discovered that when spending remains in the community, more money is circulated throughout the local economy, creating more businesses, more jobs, and more prosperity.

Even though the “shop local” trend has caught on with the public, we still appear to be ignoring the importance of local financial institutions in developing our communities. According to Local First Arizona, 96% of Arizona deposits are kept in banks with no local ownership or local decision making. This leaves only 4% of deposits held in local financial institutions—but the influence of local financial institutions impacts you in more ways than you would assume.

Lending a hand to small business

Since their inception during the Great Depression, credit unions have served as the financial engine of small business.

In 2012, the Federal Deposit Insurance Corporation (FDIC) surveyed small business groups and nonprofit organizations across the U.S. about their experiences dealing with national and local financial institutions. They found that “community development banks are faster to make decisions on loans, more flexible, and more willing to negotiate less conventional terms on secure loans.”

This flexibility allows local financial institutions to extend loans to small businesses who may not otherwise have access to funding. Lending numbers bear this out: According to the FDIC, credit unions and community banks provided loans for more than half of the small businesses in the U.S.

After the Great Recession, national banks pulled back from lending to small businesses due to the turbulent economy, and local financial institutions stepped in to fill the void.

The Biz2Credit Small Business Index measures monthly levels of lending among big banks (those with over $1 billion in assets), credit unions, and small community banks. As of February of this year, big banks approved just 25.4% of loan applications, while credit unions approved 40.2%.

A tale of three states

Little research has been done on the scale of economic impact that local financial institutions have on the states within which they reside. One of the few is a 2016 study by consulting firm ECONorthwest, which shows massive economic benefits in the states of Oregon, Idaho, and Washington.

The study found that credit unions brought the three states $8.4 billion in economic impact, which included supply chain spending, wages, and direct member benefits. It also found that credit unions delivered $528 million in benefits to their members, who saved through higher dividends, lower loan interest rates, and higher returns on savings accounts.

A job creation machine

Due to their unique position as an engine of small business, credit unions serve as a catalyst for job growth. According to the ECONorthwest study, for every one credit union job, two additional jobs were created in the surrounding community. They calculated that the 19,600 credit union jobs in Oregon, Idaho, and Washington created 56,500 jobs through economic impact—to put that into perspective: that’s more than the entire U.S. coal industry employs.

The U.S. government has begun to recognize the importance of credit unions for job creation, which has led to the Credit Union Small Business Job Creation Act. The bill would allow credit unions to expand small business lending by raising the cap on member business loans (MBL), and the NCUA says it would create 140,000 jobs through increased business lending, leading to a total of $13 billion in economic benefits. While the bill was introduced in 2015, it hasn’t yet come up for a vote in the House.

The lifeblood of rural America

Recently, much has been written about the struggle of rural communities and a sentiment of being “forgotten” in favor of big cities. Urban centers do tend to get most of the attention since they’re home to about 80% of the U.S. population. But that leaves 20%—or about 60 million people—who live in rural communities that lack many of the resources found in cities.

In some of these rural areas, local financial institutions aren’t merely an option— They are a necessity.

The FDIC discovered that 1 in 5 counties across the U.S. has local financial institutions as their only physical banking presence. As a result, 16.3 million people wouldn’t have access to mainstream banking services without the presence of local financial institutions.

These numbers show the integral role that local financial institutions play in keeping America’s rural communities running. Local financial institutions account for 49.2% of all deposits in rural communities and you’ll find twice as many local branches than you would see in a city.

Whether it’s through small business lending, job creation, or strengthening rural communities, local financial institutions serve an outsize role in the health of the U.S. economy. Over the years, local financial institutions have been able to retain the personalized service, local decision making, and lending that keep our communities thriving.

Vantage West Credit Union is on a mission to ignite collaborative relationships with the Members and the communities we serve, so we can thrive together. All products and services subject to approval and subject to change. Certain restrictions apply. Vantage West offers consumer and business banking services, and is federally insured by NCUA. Learn more at

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