Rural banking traditionally has serviced the financial needs of people living in remote areas of the United States. Unlike banks located in more populous urban areas, rural banks may have relatively small and specialized customer bases spread over a far greater geographical area. Examples include banks with an agricultural focus or those serving a small rural community.
Rural Banking Services
People living in rural areas need the same banking services as those living in larger towns and cities. A community bank in a rural area might offer regular retail banking services, including loans and mortgages, that let personal and business customers manage their banking needs close to home. Depending on their location and the local business focus, some rural banks develop specialty commercial skills in areas such as agribusiness. For example, some operate solely within the Farm Credit System -- a network of borrower-owned lending cooperatives and specialized service organizations -- specializing in business credit and funding for farming, ranching and other agricultural customers.
Rural Banking Performance
Loans made by rural banks are less likely to default than those made by urban banks of a comparable size, according to a 2012 report on Small Business Administration loans. Many rural banks also build better long-term relationships with their customers, creating "social capital" within small communities. In addition, many develop a detailed understanding of local business conditions. In more remote areas, one bank may be the only option available to residents.
Rural Banking Issues
As rural areas lose residents to small towns, suburbs or big cities, rural banks are impacted. Declining customer numbers can affect the bank's financial performance because there is less need for credit and deposit services, which leads to less income. In addition, rural banks may be heavily dependent on a specific local business sector, such as agriculture. Problems within the sector could influence the bank's business and profitability. Finally, rural banks in the 21st Century must compete against larger banks, as well online banks, that give customers remote access to services. This removes some of the need for face-to-face transactions at local rural bank branches.
Adapting to New Technologies
Some rural banks are adapting to modern industry trends by expanding their technology and services. For example, an April 2014 article in "USA Today" reports that one of the smallest banks in Iowa "was among the first in the country to deploy a new kind of ATM that uses a real teller, available by video." Other banks have adopted a virtual teller system to replace staffed branches or to supplement services. This allows customers to talk to a teller in a centralized call center through a video link.
- Farm Credit Bank of Texas: About Us
- Federal Reserve Bank of St Louis: Small Business Lending and Social Capital -- Are Rural Relationships Different?
- Illinois Institute for Rural Affairs: Rural Depopulation Continues to Pose Challenges for Community Banks
- The Wall Street Journal: After Years of Growth, Banks Are Pruning Their Branches
- USA Today: Interactive Bank Tellers Help Rural Banks Expand Service
- karam miri/iStock/Getty Images