For example, we may conduct a test to determine what level of loan delinquency would serve to render a financial institution bankrupt. Would its capital be totally eroded if 10 percent of its loan portfolio were to become a total loss to the bank? Or would it still be solvent if the loss were 20 percent, or 30 percent?
Community banks have strong links to the people and businesses in their communities, as well as direct knowledge of local economic conditions. These close ties give community bankers a clear advantage in understanding local needs and tailoring their products and services to meet those needs.