While the corporate banking industry continues its climb toward economic domination, community-based banking is looking less and less like Santa Fe these days.

Just two of the commercial institutions in the city are locally headquartered: Los Alamos National Bank and Century Bank.

As Santa Fe strives to grow its economy, too few community banks could mean too little access to startup cash or money for existing businesses to expand. The City Different is not so different in that respect. Nationwide, community banks have closed in ever-greater numbers since the start of the recession in which much of New Mexico still finds itself.

Within weeks, one of the most familiar names, First National Bank of Santa Fe, which has been around since Ulysses S Grant waved the bloody shirt and got elected president, is once again set to switch hands. El Paso-based Strategic Growth Bancorp bought the bank in 2012 and is expected to close a deal to merge with Sunflower Financial. The new company will be headquartered in Denver.

Community banking is notoriously hard to define. Is it better to define community banks by the scope of their business? By the size of their deposits? Their loans? When the Federal Deposit Insurance Corporation studied community banks in 2012, it declared defining them the first order of business. The FDIC’s study described community banks as banks that are locally owned and focus on traditional lending—business loans, mortgages, deposits—within a relatively narrow geographic area. It’s more or less the way your parents or grandparents understood banking. 

Anson Stevens-Bollen
Anson Stevens-Bollen | Anson Stevens-Bollen

It's a bank model that gets money flowing, the feds said, and is "... particularly important to small businesses that rely on community banks for loans and other services. Small businesses, particularly small start-up companies, may be unable to satisfy the requirements of the more structured approach to underwriting that larger banks use."

Los Alamos National Bank President and CEO John Gulas tells SFR that for them, "it's about a relationship-oriented model. All the decisions on loans and banking are made here. A national or regional bank usually has a strong community presence in its home city. But when their loan officers are looking at a property [in Santa Fe], they can't know how it fits into the city. A community banker will know exactly where that property is and how it fits into the neighborhood."

Do community banks make loans national banks wouldn't? Don Padgett, president and CEO of Century Bank, answers before the question is finished: "That's an unequivocal yes."

For Padgett, whose bank is still largely owned by Santa Fe businessman Gerald Peters, if a bank is committed to staying local, the relationship banking model is more successful. The more shareholders a bank has or the more corporate its lending structure becomes, the more difficult it is to truly understand what's happening at the local level.

What to do?

Many banks like First National still consider themselves community banks. If they aren't locally owned, their managers still try to operate on the relationship-banking model.

Michelle Coons, president of First National and a lifelong New Mexico resident, emailed SFR that the bank focuses on the city's tourism and custom home market.

New Mexico-born credit unions handle an increasing amount of Santa Fe deposits and loans. Though holding an account in the nonprofit, member-owned model is far less restrictive than it used to be, most are still limited either by an employer or by a geographic area.

And there remains the possibility of a public bank chartered by the city of Santa Fe. The idea has been around for a few years, most notably as part of Mayor Javier Gonzales' campaign in 2014. The city shelled out $50,000 for a study on the proposal, which would place city deposits in a taxpayer-owned bank and initially have only the city as a client. When Santa Fe has to sell a municipal bond to pay for road repairs or improvements to a recreation center, it would save itself some interest payments and finance fees by handling the task through a public bank instead of paying a private banker to do the job.

Though the city currently has tight liquidity requirements and only stashes money in Wells Fargo and First National, local bankers weren't thrilled about the idea.

"I'm not surprised you're getting some skepticism," says Elaine Sullivan of Banking on New Mexico, an advocacy group which supports public banks. She says the idea isn't to steal business from community banks.

"In the short term, our notion about public banking is that it would not be in competition with community and credit unions ... based on the belief that community banks and credit unions are paying attention to their own communities," Sullivan says. Ultimately, supporters see a public bank as having enough money to lend to other local banks, freeing up capital for more loans and generating local economic activity.

There's unquestionably value in the community-banking model. The question is whether community banks can stick around long enough to make the loans that drive the community they serve.