4,844. That’s the number of Federally insured banks in our country. The U.S. has more banks than anywhere on earth; that number is fed by local and regional banking. Small banks have always been a large part of our economy.

Back in March we saw a bank run that caused the collapse of Silicon Valley Bank, the second largest bank failure in U.S. history. Understandably, this brought a lot of fear to anyone banking with a small bank, with the assumption that their bank could fall too. In a short time big banks across the country saw huge deposits as people transferred their money, supposing that these big guys were too big to fail.

What a lot of people may not realize is the major fears that some have are unwarranted. If you have less than $250,00 in the bank your money is covered by FDIC insurance.

Regional and community banks are vital to the U.S. economy. Community banks provide 77% of agricultural loans and over half of the small business loans in our country. Small banks are able to lend to a wider range of people than the big banks. When you bank with a community or regional bank you are supporting a local small business, which means you are supporting your local economy. When you give your money to a big bank, that money goes to support big businesses that may not even know your city or town exists. Small banks are able to tailor their business to the needs of the community. They are also more aware of the needs and the risks within their area, far more than a big bank ever will be. Small banks can perform and provide for their community in ways that big banks simply can’t.

Usually, a local bank is less costly and has lower employee turnover. They may also offer fewer or lower fees and offer more competitive rates. Not only do they offer products and services that are more geared towards your community, but small banks tend to be more interested in meeting the needs of their customers. They recognize that they depend on their customers just as much as their customers rely on them. With a small bank, it’s likely you will work with the same tellers, the same loan officers, and build relationships with the individuals that work at your bank, and they will get to know you.

Wouldn’t you wanna go where everybody knows your name?

Money exchanges hands every day. Whether its paying cash at the store, using a debit or credit card at the gas pump, or paying bills online. How is it that these myriad ways of spending money is consistent and accepted all across our country? What gives our money it’s value?

At one time, our money was backed by the value of gold, this was known as the gold standard. However, in 1971 President Nixon abandoned the gold standard in an effort to curb inflation and prevent foreign nations from depleting the national stores by redeeming their dollars for gold. With the gold standard the government could only print as much money as they had gold.

Now our country uses fiat money, which is a government-issued currency that is not backed by a commodity, like gold (Not to be confused with “Fiat” the Italian auto maker). The term fiat is Latin for “it shall be” or “let it be done.” When the government issues a value, it shall be; thus, fiat currency only has value because the government says it has value. Our dollars are backed up by the “full faith and credit” of the U.S. government, and considered “legal tender,” instead of “lawful money,” which could be exchanged for gold. This type of money gives the central bank a more flexible system to work with, allowing them more control over the economy and how much money is printed. There is a danger in this, though, when a government prints too much money it results in hyperinflation.

Because fiat money is not linked to a fixed resource like gold, it’s not scare, so central banks are able to control the supply, giving them more power to manage things like credit supply, interest rates, liquidity, and the velocity of money.

While this system works to stabilize the economy and curb inflation, it is a delicate balance. Behind all the bureaucracy and regulations, if a people lose faith in their government, the currency will no longer hold value. In simple terms, our money has value because of the confidence we place in our government. We trust them to honor the value they have set forth.

This can be problematic; if a government begins making choices that the people do not agree with, the people will lose their confidence in the government and their currency would become worthless, crippling the economy.

There is no perfect system. There are pros and cons with both gold standard and fiat money. The one truth that holds true no matter which money system is used: you can’t spend your way out of debt. Which ever currency you have, you need to manage it well.

Photo by Giorgio Trovato