Fourth Annual Community Banking Research and Policy Conference

Research Papers, Authors and Key Findings

Research Paper Session 1
The Continuing Relevance and Importance of the Community Bank Business Model

Is the Traditional Banking Model a Survivor?

Authors: Robert DeYoung, University of Kansas; Vincenzo D'Apice, Italian Banking Association; Vincenzo Chiorazzo, Italian Banking Association; Pierluigi Morelli, Italian Banking Association

Key Findings: Banks with business models normally associated with community banking—that is, those that emphasize relationship loans, core deposit funding, revenue streams from traditional banking products and physical branches--were less likely than other banks to fail, be acquired or absorbed into parent holding companies, 1997 to 2012. The survival advantage was accentuated during the financial crisis.

Bank Business Models in the US: Identification, Performance, Risks and Regulation

Rym Ayadi, HEC Montreal

Why Banks Matter: Measuring the Impact of Banks on Missouri's Economy

Author: Joseph Haslag, University of Missouri

Key Findings: A hypothetical withdrawal of Missouri banks from commercial and agricultural lending would cause job losses reducing employment by five percent and result in (discounted) output losses over the next 25 year equal to two-thirds of Missouri's current GDP.

The Changing Face of Communities Served by Minority Depository Institutions 2001 to 2015

Authors: Claudia Perez-Valdez, Perez-Valdez; Russell Kashian, University of Wisconsin – Whitewater; Fernanda Contreras, University of Wisconsin – Whitewater

Key Findings: Black-owned banks declined in number, 2000 to 2014, while banks owned by Asian Americans, Native Americans and Hispanics increased. Black-owned banks became increasing isolated in highly segregated communities where poverty is prevalent

Reaction to the Continuing Relevance and Importance of the Community Bank Business Model Session- Robin A. Prager and William Dana Jr.

The Continuing Relevance and Importance of the Community Bank Business Model - Moderated Question and Answer Session

Research Paper Session 2

Is Bigger Necessarily Better in Community Banking

Authors: Julapa Jagtiani, Federal Reserve Bank of Philadelphia; Joseph Hughes, Rutgers University; Loretta Mester, Federal Reserve Bank of Cleveland

Key Findings: The paper examines the overall economies of scale among publicly traded banks, as of 2013, and finds that large banks (assets more than $10 billion) are more efficient than large community banks and large community banks are more efficient than small community banks in terms of their abilities to achieve high market values for assets. The authors also find that large community banks, but not small community banks or large banks, enhance their performance (become more efficient) by originating more small business loans.

Bank Size, Compliance Costs and Compliance Performance in Community Banking

Authors: Michelle Neely, Federal Reserve Bank of St Louis; Andrew Meyer, Federal Reserve Bank of St. Louis; Drew Dahl, Federal Reserve Bank of St Louis

Key Findings: Economies of scale in satisfying regulatory requirements were evident in a sample of 469 community banks surveyed in 2015. Higher (lower) compliance expenses, moreover, did not necessarily lead to better (worse) regulatory ratings.

Has the Relationship Between Bank Size and Profitability Changed

Authors: Rajdeep Sengupta, Federal Reserve Bank of Kansas City; Kristen Regehr, Federal Reserve Bank of Kansas City

Key Findings: Profitability increased with size for community and regional banks, but at a decreasing rate, 2001 to 2014. Regulatory changes imposed in the aftermath of the financial crisis, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, did not significantly alter earlier relationships between size and profitability, suggesting that community banks have not been "disadvantaged relative to their larger competitors."

Reaction to the Relationship Between Community Bank Size and Performance Session- Cynthia Course and Allan (Al) Landon

The Relationship Between Community Bank Size and Performance - Moderated Question and Answer Session

Research Paper Session 3

Did Capital Requirements in the Early 20th Century US Promote Bank Stability

Author: Michael Gou, University of California at Irvine

Key Findings:  Banks subject to higher capital requirements in 1905 did not experience less leverage or lower subsequent rates of failure. This suggests that capital requirements were ineffective in promoting bank stability.

Dodd-Frank Federal Deposit Insurance Reform

Authors: Kyle Allen, Louisiana Tech University; Travis Davidson, Ohio University; Scott Hein, Rawls College of Business, Texas Tech University; Journal of Financial Research; Matthew Whitledge, Coastal Carolina University

Key Findings: The Dodd-Frank Wall Street Reform and Consumer Protection Act shifted the basis on which deposit insurance fees are assessed from deposits to all liabilities, while, at the same time, lowered assessment rates. Because community banks rely disproportionally on deposits to fund assets, they benefited from these changes: In the first year of the new assessment mechanism, in 2011, they paid about $744 million less than they would have under the prior system.

Commercial Lending Concentration and Bank Expertise -Evidence from Borrower Financial Statements

Authors: Phillip Berger, University of Chicago; Michael Minnis, University of Chicago; Andrew Sutherland, Massachusetts Institute of Technology

Key Findings: Banks were less likely to collect audited financial statements from firms operating in industries in which they (the banks) had greater numbers of borrowers, 2002 to 2011, which is consistent with a hypothesis that industry knowledge serves as a substitute for verified financial information. The negative relation between industry exposure and audited statement collection strengthens as the bank gains experience. Both findings are interesting insofar as community banks rely on "soft" information, such as personal relationships with borrowers, rather than "hard" information, such as credit scores.

Reaction to the Community Bank Regulatory Issues Session Todd Vermilyea and Glen Jammaron

Community Bank Regulatory Issues- Moderated Question and Answer Session