Ownership fuels motivation. As proof, consider a home. Homeowners care more about their house than do their neighbors, because of their personal investment. Similarly, small business owners across the United States are motivated each day precisely because of their personal stake in the business.
Banks are, most commonly, owned in one of three ways: 1)stockholders (public), 2)family (private), or 3)deposit holders (mutual). Like our small business example, a bank’s owners become the driving force motivating the bank’s decisions.
A public bank is owned by stockholders who publicly purchase ownership on the open market. The bank pays these individuals through dividends and valuation growth. The bank is beholden to the stockholders as its owners. Imagine the stockholders of a bank desire a $1 per share dividend as a return on their investment. The bank projects next year’s income and finds that it can only support a 75 cents per share dividend. Management could decide to lower the dividend. However, this will cause some owners to sell their shares to less demanding owners and create negative publicity for the bank due to underperformance. More likely, management will find a way to support the $1 per share dividend. Frequently, the depositors and borrowers pay that additional income necessary in the form additional fees or lower interest on deposits. At times, the employees pay the price in the form of lost wages or lost employment.
A privately held bank is similarly structured with stockholders, but its stock is either solely or predominantly owned by one family. Family members often hold positions of importance within the bank and on its board of directors. Often these banks are small banks which serve the greater good of their communities. The families live near the bank and gain value when the whole community grows.
Bloomfield State Bank was a good example of this type of ownership, and they certainly did much good for the communities in which they had a presence. Often, this ownership structure experiences stress as generation succeeds generation. Future generations are not as interested in the day-to-day operations and eventually sell the bank to a larger institution.
The final ownership structure is depositor owned, often referred to as a mutual. This type of structure means that a bank is motivated to do what is in the best interest of its depositors. Profits benefit the bank’s depositors in the form of interest and lower fees. Mutuals are often more averse to risk, as one bad investment could damage the bank’s ability to continue servicing its owners going forward.
Therefore, mutuals often have higher lending standards. Mutuals are also less apt to sell or merge.
Before a mutual would ever consider selling or merging, it must prove that the change would benefit the depositors. Farmers and Mechanics Federal is a mutual, and we are motivated by the opportunity to serve our owners throughout our local communities.
Who owns your bank?