The U.S. banking system is unusual in consisting not only of some very large banks but also a large number of relatively small community banks. This bifurcated banking structure resulted largely from a legal framework that, in the past, restricted banks’ abilities to diversify geographically. This institutional structure, in turn, reflected a long-standing concern in the United States about the concentration of banking power in a few very large institutions located far away from many of the customers they serve. The bifurcated banking system in the United States has served the economy well. Over time, with regulatory change and financial innovation, large banks have become complex organizations engaged in a wide range of activities. They provide a variety of services to their customers, but often rely on hard financial information, computer models, and centralized decision-making as the basis for conducting business. In contrast, small banks have focused more on “relationship bankingbasing decisions on personal knowledge of customers’ creditworthiness and a keen understanding of business conditions in the communities they serve. In this way, the bifurcated banking system has served the needs of a diverse U.S. economy composed of businesses of all shapes and sizes and consumers with diverse needs and preferences. While community banks have a clear place in the U.S. banking system, some analysts have questioned whether they play a sufficiently important role in the economy to warrant public interest and oversight. With increased merger activity over the last 20 years, the number of community banks—while still quite large—has declined. In addition, small banks pose little systemic risk to the nation’s financial system. And, if community banks were not there, other financial services providers might readily step in to take their place. This article examines the role of community banks in the U.S. economy. The first section of the article argues that, while community banks hold only a small share of the nation’s banking assets, they provide important financial services—for which there are few, if any, substitutes—to some key sectors of the economy. The second section argues that community banks will continue to play an important role in the banking industry, even as technology and market conditions change. The paper concludes that the Federal Reserve therefore has a strong interest in understanding issues facing community banks.