The U.S. community banking model remains quite viable and there will be a strong community banking sector in the financial system for the foreseeable future, said Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation.

"We at the FDIC felt we had a particular responsibility coming out of the crisis not just to carry out our supervisory responsibilities, but to try to take a careful look at what’s happened to community banks in the United States over the longer term and the role they play in our financial system," he said.

The FDIC’s research division assembled 27 years of banking data and developed a new research definition of the community bank that is based not just on size, but on the characteristics that define community banking, namely: traditional relationship lending and a focus on a limited geographic community.

By such standards, most banks with under $1 billion in assets do indeed qualify as community banks, but another 330 institutions with assets between $1 and $10 billion almost met the FDIC’s community bank definition.

"Community banks play a role in our financial system that actually has consequence far beyond their share of total industry assets. By its nature, small business lending is often labor-intensive and highly customized, which is the kind of lending that community banks really are set up to do," Gruenberg explained.

Thus, it’s really not clear whether small business would have sufficient access to the type of credit needed if the nation lacked a community banking sector.

"It seems to me that if we could manage to run our financial system over the next 20 years so that we have fewer crises and fewer failures, the pace of consolidation over the coming decade or two may not be nearly as fast as we’ve seen over the past 20 years, particularly in the community bank model," Gruenberg stated.

He concluded, "And we think that the basic business model that community banks adhere to remains not only viable but also quite critical to the functioning of the banking system in the United States."