Community Banking in the 21st Century
The fifth annual Community Banking in the 21st Century research and policy conference, co-sponsored by the Federal Reserve System and the Conference of State Bank Supervisors (CSBS), took place October 4-5 at the Federal Reserve Bank of St. Louis. The conference brought together community bankers, academics, policymakers and bank regulators to discuss the latest research on community banking.
The conference presents an innovative approach to the study of community banks. Academics explore issues raised by the industry in a neutral, empirical manner and present their findings at the conference. Community bankers contribute to an annual national survey prior to the conference and then participate directly in the conference by serving as keynote speakers and panelists and by providing feedback to the research presented.
This year’s guest speakers included Federal Reserve Chair Janet Yellen; CSBS Chairman and Wyoming Division of Banking Commissioner Albert Forkner; and CSBS President and CEO John Ryan. Keynote speakers include Cynthia Blankenship, vice chairman, corporate president and chief financial officer of Grapevine, Texas-based Bank of the West; and Federal Reserve Bank of San Francisco President John Williams.
The call for papers for this year's conference opened Feb. 2, 2017.
For more information, please contact firstname.lastname@example.org.
Gateway Auditorium, 6th Floor | Federal Reserve Bank of St. Louis
October 4-5, 2017
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- Wednesday, October 4
Arrival and Networking
Research Paper Session 1
Supervision, Regulation and Bank RiskModerator: Robert DeYoung
Capitol Federal Distinguished Professor in Financial Markets and Institutions, University of KansasCommunity Bank Discussant: Martin Birmingham
President and Chief Executive Officer, Five Star Bank, Rochester, N.Y.The Effect of Bank Supervision on Risk-Taking: Evidence from a Natural ExperimentJohn Kandrac, Board of Governors of the Federal Reserve SystemDoes Bank Supervision Matter? Evidence from Regulatory Office ClosuresJens Hagendorff, University of EdinburghRules and Judgment in the Oversight of Bank Accounting PracticesMichelle Neely, Federal Reserve Bank of St LouisRisk-insensitive RegulationAlexander Bleck, Sauder School of Business at the University of British ColumbiaReaction to the Supervision, Regulation and Bank Risk Session: Robert DeYoung and Martin BirminghamSupervision, Regulation and Bank Risk Session: Moderated Q&A
Presentation of Winning Case Study and Video from the 2017 CSBS Community Bank Case Study Competition
University of AkronIntroduction: Charlotte Corley
Commissioner, Mississippi Department of Banking and Consumer Finance; chairman, Conference of State Bank Supervisors - CSBSCase Study Team
Jeffrey Kelbach, Michael Moore, Jacob Ruocchio-Cole and Kenan Sprague, University of AkronFaculty Advisor
Bhanu Balasubramnian, Associate Professor of Finance, University of AkronCommunity Bank Partner
Chuck Sulerzyski, President and Chief Executive Officer, Peoples Bank, Marietta, OhioModerated Q&A
Evening Reception and DinnerHyatt Regency St. Louis at the Arch
- Thursday, October 5
Breakfast and Networking
Research Paper Session 2
Factors Influencing Bank Behavior and PerformanceModerator: Allen Berger
H. Montague Osteen, Jr., Professor of Banking and Finance, Darla Moore School of Business, University of South CarolinaCommunity Bank Discussant: Kevin Riley
President and Chief Executive Officer, First Interstate Bank, Billings, Mont.Core Profitability of Community Banks, 1985-2015Jared Fronk, Federal Deposit Insurance Corporation (FDIC)Competition and Bank FragilityW. Blake Marsh, Federal Reserve Bank of Kansas CityRegulatory Asset Thresholds and Acquisition Activity in the Banking IndustryAllison Nicoletti, Wharton School of the University of PennsylvaniaReaction to the Factors Influencing Bank Behavior and Performance Session: Kevin Riley and Allen BergerFactors Influencing Bank Behavior and Performance Session: Moderated Q&A
Research Paper Session 3
Real Effects of Government PoliciesModerator: Timothy Yeager
Arkansas Bankers Association Chair in Banking at the Sam M. Walton College of Business, University of ArkansasCommunity Bank Discussant: Peter Schork
Co-founder, President and Chief Executive Officer, Ann Arbor State Bank, Ann Arbor, Mich.Financial Crises and Filling the Credit Gap: The Role of Government-guaranteed LoansJohn Hackney, University of South Carolina, Darla Moore School of BusinessThe Real Effects of Geographic Lending Disclosure on BanksYiwei Dou, New York UniversityColor and Credit: Race, Regulation and the Quality of Financial ServicesTaylor Begley, Washington University in St. LouisReaction to the Real Effects of Government Policies Session: Peter Schork and Tim YeagerReal Effects of Government Policies Session: Moderated Q&A
2017 National Survey of Community Banks
Presentation of ResultsMichael Stevens
Senior Executive Vice President, Conference of State Bank Supervisors - CSBSAndrew Meyer
Senior Economist, Federal Reserve Bank of St. Louis2017 National Survey Chart Book2017 National Survey Chart Book
Panel Discussion: Community Banking in the 21st Century: 2017 National Survey of Community Banks and State RoundtablesModerator: David Hanrahan
President and Chief Executive Officer, Capital Bank of New Jersey, Vineland, N.J.PanelistsBrian Graham
Chief Executive Officer, Alliance PartnersRon Green
Chief Information Security Officer and Group Executive, Mastercard Operation & Technology / Law Franchise IntegritySteven Streit
President and Chief Executive Officer, Director, Green Dot Corporation
Research Papers, Authors and Key Findings
Research Paper Session 1
Supervision, Regulation and Bank Risk
Key Findings: In the early 1980s, the vast majority of supervisory employees in the Ninth District of The Federal Home Loan Bank (FHLB), operating out of Little Rock, Arkansas, quit rather than relocate to Dallas, Texas. The authors use this event to study the effects of a reduction in supervisory attention. They find that the affected thrifts increased risky real estate investments and experienced higher-cost failures, relative to thrifts in other districts. They conclude that banking supervision is a vital element of banking policy that has important effects on bank behavior and protects taxpayers from costly failures.
Does Bank Supervision Matter? Evidence from Regulatory Office Closures
Key Findings: The authors use the closure of 11 regional offices of Federal bank regulatory agencies, 1984 to 2013, to study “negative shocks to the efficacy of supervision.” They hypothesize that a shift in the location of oversight from a local (closed) regulatory office to a more distant office increases the costs for examiners to collect and verify bank specific information. They find that banks affected by office closures, relative to unaffected banks operating within the same geographic markets, lend more and are riskier, less profitable and more likely to fail. They conclude, first, that the organizational structure of supervisors is important and, second, that its effectiveness can be can be linked to informational capabilities.
Key Findings: The authors analyze how banks of different size adhere to ostensibly “one size fits all” accounting guidelines prescribing that provisions for loan losses anticipate subsequent charge-offs. They find that correlations of provisions and charge-offs are lesser for smaller banks, which they interpret as consistent with a hypothesis that bank regulators are able to reconcile rules and judgment by “tailoring” their supervisory practices to the unique characteristics of community banks. They also find that the exercise of judgment may be associated with greater lending as well as with a greater vulnerability to potential failure.
Author: Alexander Bleck, Sauder School of Business at the University of British Columbia
Key Findings: This article is a theoretical paper describing how, when a bank has an informational advantage over a bank regulator, it leads to a trade-off: relying on information from banks to refine regulation improves bank risk-taking but also aggravates systemic risk in the banking system and undermines its informativeness. The model explains why the observed relationship between measured risk and actual risk is low. It also shows that when market frictions (information asymmetry and the cost of systemic risk) become more severe, optimal regulation becomes more risk-insensitive.
Reaction to the Supervision, Regulation and Bank Risk Session: Robert DeYoung and Martin Birmingham
Supervision, Regulation and Bank Risk Session: Moderated Q&A
Research Paper Session 2
Factors Influencing Bank Behavior and Performance
Author: Jared Fronk, Federal Deposit Insurance Corporation (FDIC)
Key Findings: The author finds that the “core” profitability of community banks has been relatively stable across the thirty-year period ending in 2015. From this perspective, observed declines in returns on assets following the recent financial crisis—which sometimes have been described as dire—are “largely attributable” to the severity of the downturn in macroeconomic factors. He concludes that the fundamental earnings model of community banks remains sound.
Key Findings: The authors find that community banks increase commercial real estate loan holdings, and decrease shares of residential real estate mortgages and consumer loans held, following entry into their markets of larger bank competitors. This is consistent with theories that suggest that, following entry of large banks, community banks lose market share in low-risk, transactions-based retail lending but leverage their knowledge of the local market to focus on relatively riskier activities.
Key Findings: The authors test a hypothesis that compliance costs imposed on banks with assets greater than $10 billion, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, increase the demand for acquisition activity approaching and just above this threshold. Their empirical evidence leads to a conclusion that implementing regulations on the basis of asset thresholds can contribute to consolidation in the banking industry.
Reaction to the Factors Influencing Bank Behavior and Performance Session: Kevin Riley and Allen Berger
Factors Influencing Bank Behavior and Performance Session: Moderated Q&A
Research Paper Session 3
Real Effects of Government Policies
Author: John Hackney, University of South Carolina, Darla Moore School of Business
Key Findings: The author analyzes the impact of government guarantees on small business lending during the recent financial crisis, during which impacts of financial constraints in private credit markets were pronounced. He finds evidence that, within a given geographic market, the number of bank branches offering loans guaranteed by the Small Business Administration is positively associated with market growth in small business loans. This growth, moreover, increases employment at the smallest firms but does not increase defaults on loans.
Key Findings: Community organizations leverage access to the geographical distribution of loans mandated by the Community Reinvestment Act (CRA) to press for lending under its requirement that banks meet local credit needs. The authors examine the 2005 exemption of this disclosure mandate and find that banks that take the exemption, relative to those that do not, experience a reduction in non-performing loans. They conclude that mandatory disclosure for some banks results in a “deterioration” of loan underwriting quality.
Key Findings: The authors find that the quality of services provided to bank customers is lower in markets with lower incomes and higher minority populations. They also find that requirements under the Community Reinvestment Act to increase the quantity of services have an unintended consequence of lowering the quality of services delivered, which is consistent with incentives for banks to dilute quality when quantity is regulated.
Reaction to the Real Effects of Government Policies Session: Peter Schork and Tim Yeager
Real Effects of Government Policies Session: Moderated Q&A
Speakers and Panelists
Cynthia L. Blankenship is vice chairman, corporate president and chief financial officer of Bank of the West, Grapevine, Texas. Bank of the West specializes in small business lending and has eight locations in Texas. She is currently a member of the board of directors for the Independent Community Bankers of America (ICBA). She is a past chairman of the ICBA and is the immediate past chair of the ICBA services network. Blankenship has also served on the Federal Deposit Insurance Corporation’s Community Banking Advisory Board. She was appointed Dean for Bankers and chaired the Southwestern School of Banking Foundation at Southern Methodist University from 2006 to 2009. In 2009, she received the Distinguished Alumni Award from the Southwestern Graduate School of Banking, Southern Methodist University Cox School of Business. Blankenship served as chair of the Independent Bankers Association of Texas (IBAT) in 2002 and served as chair of the IBAT Education Foundation which raised more than $1 million for financial literacy. In 2004, U.S. Banker magazine named her one of the 50 Most Powerful Women in Banking. Blankenship has served her community through the Colleyville Women’s Club, the Community Bankers Education Foundation, the Bear Creek Community Development Project, and Dallas Summer Musicals. She is a member of the Grapevine Chamber of Commerce and a recipient of the 1999 Arts Education Award and the 2004 Colleyville Women’s Club Novus Award. Blankenship currently sits on the board of directors of the Grapevine, Texas, Convention and Visitors Bureau. In November 2010, she was named as one of the 2010 Great Women of Texas.
John Hackney is an assistant professor of finance at the University of South Carolina’s Darla Moore School of Business. He graduated from Gonzaga University in Spokane, Wash., with a degree in finance and economics, and spent his working life before graduate school in his family’s screen-printing business, which directly benefited from community bank funding. He received his Ph.D. in finance from the University of Washington in 2016. His research currently focuses on the effects of government regulation on small business financing.
John Kandrac is a senior economist in the division of monetary affairs at the Federal Reserve Board of Governors, where he works on topics related to monetary policy implementation and money markets. His research focuses on monetary economics, banking and financial intermediation, and financial markets. Prior to joining the Federal Reserve, he was an analyst at J.P. Morgan and received his Ph.D. from the University of Oregon.
John W. Ryan is the president and CEO of the Conference of State Bank Supervisors, the national association representing state banking supervisors and the leading advocate for advancing the state banking system. Before being named CSBS president and CEO in August 2011, Ryan was CSBS's executive vice president, a position he had held since October 2003. He first joined CSBS in 1997 as an assistant vice president for legislative affairs. Prior to joining CSBS, Ryan worked at Newmyer Associates, a public affairs consulting firm, where he led the company's financial services consulting practice. Previous to his work at Newmyer Associates, Ryan spent four years as a professional staff member to the U.S. House of Representatives Committee on Banking, Finance and Urban Affairs. Ryan received a bachelor's degree in political science and economics from the University of California-Berkeley.
Julie Stackhouse is executive vice president and managing officer of supervision, credit, community development and learning innovation for the Federal Reserve Bank of St. Louis. Prior to joining the St. Louis Fed in September 2002, Stackhouse served as vice president and managing officer of the Risk Management department of the Federal Reserve Bank of Minneapolis. In addition, she was formerly an officer with the Federal Reserve Bank of Kansas City prior to relocating to Minnesota in 1995. She served in many capacities at the Kansas City Reserve Bank, starting as an examiner in 1980. Stackhouse holds a bachelor's degree in business administration from Drake University and is a graduate of the Wisconsin Graduate School of Banking. She currently serves as president-elect of the Board for National Charity League, Inc., a mother-daughter philanthropic organization, and as a member of the St. Louis Forum. In 2010, Stackhouse was named a St. Louis Business Journal “Most Influential Business Women” recipient, and in 2016, was recognized with the Delta Sigma Pi Lifetime Achievement Award.
Michael Stevens is the senior executive vice president at the Conference of State Bank Supervisors (CSBS). He is responsible for leading the organization's public policy, financial supervision, federal coordination, communications, industry relations and professional development functions. Stevens also serves as the principal deputy to the state banking member of the Financial Stability Oversight Council. Prior to his appointment in September 2011, he served as the senior vice president for regulatory policy, representing the state banking system in the development of policy in the areas of financial stability, prudential supervision and consumer protection. He joined CSBS in 1999 to work in all facets of CSBS's professional development division. Stevens is a frequent instructor and speaker on banking policy, examinations and financial analysis. He serves on the faculty of the Graduate School of Banking at Colorado and at Texas Tech University's School of Banking. He began his regulatory career as a bank examiner for the Iowa Division of Banking, where he served 11 years.