Community Banking in the 21st Century
The sixth annual Community Banking in the 21st Century research and policy conference—sponsored by the Federal Reserve System, the Conference of State Bank Supervisors (CSBS) and the Federal Deposit Insurance Corp. (FDIC)—will take place Oct. 3-4 at the Federal Reserve Bank of St. Louis. The conference brings 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 keynote speakers are Federal Reserve Bank of Cleveland President Loretta J. Mester, Federal Reserve Vice Chairman for Supervision Randal K. Quarles, and Beneficial Bank’s President and CEO Gerard Cuddy. Other guest speakers include CSBS Chairman and Mississippi Department of Banking and Consumer Finance Commissioner Charlotte Corley; FDIC Chairman Jelena McWilliams; Federal Reserve Bank of St. Louis President James Bullard; and CSBS President and CEO John Ryan.
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Gateway Auditorium, 6th Floor | Federal Reserve Bank of St. Louis
October 3-4, 2018
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- Wednesday, October 3
Opening Keynote AddressLoretta Mester
President and CEO, Federal Reserve Bank of Cleveland
Research Paper Session 1
Small Business LendingModerator: Gregory Udell
Chase Chair of Banking and Finance at the Kelley School of Business, Indiana UniversityCommunity Bank Discussant: Janet Garufis
Chairman and CEO, Montecito Bank and Trust, Santa Barbara, Calif.Did Bank Small-Business Lending in the U.S. Recover After the Financial Crisis?Rebel Cole, Florida Atlantic UniversityHow Important are Local Community Banks to Small Business Lending? Evidence from Mergers and AcquisitionsJulapa Jagtiani, Federal Reserve Bank of PhiladelphiaRemote Competition and Small Business Loans: Evidence from SBA LendingNathaniel Pattison, Southern Methodist UniversitySimilarities and Differences in Small Business Lending Between Small and Large Banks: Findings from the Small Business Lending SurveyYan Lee, Federal Deposit Insurance Corporation (FDIC)
Presentation of Case StudyIntroduction: Bret Afdahl
Director of Banking, South Dakota Division of Banking; Chair-elect, Conference of State Bank Supervisors (CSBS)Case Study Team
Lorelei Nguyen, Aaron Schmidgall and Dalton Stanley, Eastern Kentucky UniversityFaculty Advisor
Maggie Abney, Executive in Residence for Banking, Eastern Kentucky UniversityCommunity Bank Partner
Stephen Kelly, Executive Vice President, Central Bank & Trust Co., Lexington, Ky.
Day One Closing RemarksJelena McWilliams
Chairman, Federal Deposit Insurance Corporation
Evening KeynoteGerard Cuddy
President and CEO, Beneficial Bank, Philadelphia, Pa.
- Thursday, October 4
Breakfast and Networking
Morning Keynote AddressRandal Quarles
Vice Chairman for Supervision, Board of Governors of the Federal Reserve System
Research Paper Session 2
Competition in BankingModerator: Dr. Timothy Koch
Distinguished Professor Emeritus, University of South CarolinaCommunity Bank Discussant: Gilda Nogueira
President and Chief Executive Officer, East Cambridge Savings Bank, Cambridge, Mass.The Effects of Competition in Consumer Credit MarketsRodney Ramcharan, University of Southern CaliforniaThe Competitive Effects of Megabanks on Community BanksTroy Kravitz, Federal Deposit Insurance CorporationDepositors Disciplining Banks: The Impact of ScandalsMikael Homanen, Cass Business School, City, University of London
Research Paper Session 3
Bank Management and PerformanceModerator: Elizabeth Kiser
Associate Director and Economist, Board of Governors of the Federal Reserve SystemCommunity Bank Discussant: Thomas Hough
CEO, Carrollton Bank, Carrollton, Ill.Technology Investment, Firm Performance and Market Value: Evidence from BanksZifeng Feng, Florida International University
Panel Discussion: The Future of Community Banking
Conference Wrap-upJohn Ryan
President and Chief Executive Officer, Conference of State Bank Supervisors - CSBS
Research Papers, Authors and Key Findings
Research Paper Session 1
Small Business Lending
Did Bank Small-Business Lending in the U.S. Recover After the Financial Crisis?
Author: Rebel Cole, Florida Atlantic University
How Important are Local Community Banks to Small Business Lending? Evidence from Mergers and Acquisitions
Abstract: We investigate the shrinking community banking sector and the impact on local small business lending (SBL) in the context of mergers and acquisitions. From all mergers that involved community banks, we examine the varying impact on SBL depending on the local presence of the acquirers’ and the targets’ operations prior to acquisitions. Our results indicate that, relative to counties where the acquirer had operations before the merger, local SBL declined significantly more in counties where only the target had operations before the merger. This result holds even after controlling for the general local SBL market or local economic trends. These findings are consistent with an argument that SBL funding has been directed (after the mergers) toward the acquirers’ counties. We find even stronger evidence during and after the financial crisis. Overall, we find evidence that local community banks have continued to play an important role in providing funding to local small businesses. The absence of local community banks that became a target of a merger or acquisition by nonlocal acquirers has, on average, led to local SBL credit gaps that were not filled by the rest of the banking sector.
Similarities and Differences in Small Business Lending Between Small and Large Banks: Findings from the Small Business Lending Survey
The authors analyze the small business lending practices of banks using a nationally-representative survey conducted by the Federal Deposit Insurance Corporation. They document that both small and large banks have distinct advantages in lending to small businesses, with small banks more likely to emphasize relationship lending technologies and large banks more likely to use transactional ones. However, they also find that small business lending for all-sized banks is in general characterized by practices that are locally-based, relationship-oriented, and high-touch (meaning, staff-intensive).
Research Paper Session 2
Competition in Banking
The Effects of Competition in Consumer Credit Markets
This paper provides evidence that greater competition from credit unions induce banks to become more efficient, with consumers benefitting from higher deposit rates and lower borrowing costs. However, shadow banks change their credit policy and aggressively expand credit to riskier borrowers, resulting in higher default rates. The authors conclude that increased competition can lead to large changes in credit policy at institutions outside the traditional supervisory umbrella, possibly creating a less stable financial system.
Abstract: The effects of industry consolidation are felt acutely at the branch level: in 1994, branches of banking organizations with fewer than $1 billion in assets represented 37% of the over 81,000 national bank branches. By 2016, small bank branches had fallen to 26% of the national total despite bank branches increasing by 13% industry-wide. We provide new insights on the effects of consolidation within the banking industry by documenting the variation of these trends across the metropolitan statistical area (MSA) and non-MSA divide. We show that overall branch and deposit growth is highest in MSAs both in relative and absolute terms. While small bank branches and deposits have declined within and outside of MSAs, we find that the decline is steeper in the MSAs, which also happen to be where large bank expansion is concentrated. We employ a difference-in-differences approach to consider the role that large bank competition plays in the performance of community banks. We use large bank expansion through mergers and acquisitions of medium-sized banks as a quasi-experiment to changes in the small bank competitive environment. We find that large bank entrance impacts small banks positively: branches of small banks that are more exposed to large bank entrance do not display worse performance outcomes, and areas of greater exposure exhibit increased small bank expansion following large bank merger activity. These results are supportive of economic theory, survey evidence on bank competition and the existing literature.
Author: Mikael Homanen, Cass Business School, City, University of London
The author observes decreases in deposit growth at nine “major” banks that financed the controversial Dakota Access Pipeline, particularly among branches located closest to the pipeline and branches in environmentally or socially conscious counties. He also finds that local savings banks were “beneficiaries of this unanticipated depositor movement."
Research Paper Session 3
Bank Management and Performance
This paper finds that CEO replacement at rural banks, relative to urban banks, does not require compromises that are evident in subsequent declines in performance as assessed by regulators. These results are inconsistent with the notion that rural banks are threatened by “talent migration” and therefore are unable to replace CEOs with the same effectiveness as urban banks.
Abstract: The Dodd-Frank Act requires stress testing for U.S. banks with assets in excess of $10 billion. Smaller community banks are not required to participate in this important information generating exercise. While community banks are clearly too small to generate systemic shocks to the U.S. economy, they are exposed to the recessions caused by systemic shocks. Because hundreds of community banks failed in the aftermath of the 2008-2009 financial crisis, the sensitivity of these banks to systemic shocks poses a concern for both policymakers, community banks, and the job-creating small businesses that depend on a healthy community banking sector. In this paper we estimate a top-down stress testing model built upon the work of Hirtle et al. (2015), but we focus our modeling specifically on community banks. Because our model uses standard econometric techniques and relies solely on publicly available data, it can be used to provide community banks access to otherwise prohibitively expensive macroprudential risk analysis, and may help further stabilize this important financial sector.
Abstract: Banks make more lending and open more branches near their CEO’s birthplace. This reflects hometown favoritism rather than information advantages: the effect is stronger among altruistic CEOs, in struggling counties, and among marginal mortgage applicants. Furthermore, while hometown favoritism does not affect the bank’s profitability, it leads to positive economic outcomes in counties exposed to greater favoritism. Together, our results suggest home favoritism as one channel that deepens credit inequality.
Key Findings: This paper studies increasing investment in technology by banks in recent years. The authors provide evidence of a positive relationship between technological spending and performance that is driven primarily by large banks and reflects improvement in operational efficiency rather than sales increases.
Speakers and Panelists
Gerard is a 38-year veteran of the financial services industry, and has held a range of senior management roles over the course of his career. He has experience in investment, private, and commercial banking having served as the Senior Loan Officer for Commercial Lending at Commerce Bank and the Regional Managing Director for Fleet private banking in Pennsylvania. Additionally, he served in various senior management positions with First Union National Bank and Citigroup in the metro Philadelphia region. He has been profiled and quoted in American Banker, The New York Times, The Philadelphia Inquirer and The Huffington Post.
Committed to improving the communities that the Beneficial serves, Gerard is a board member of the Foreign Policy Research Institute and the Pennsylvania Academy of Fine Arts and a past Board member of the Franklin Institute, the Archdiocese of Philadelphia, the Philadelphia Orchestra, the Union League of Philadelphia and the Federal Reserve Bank of Philadelphia Depository Council. He is the recipient of many awards including the La Salle University’s Leadership Award, the Rutgers University Leadership Award, the Distinguished Catholic Graduate Award, the American Catholic Historical Society’s Barry Award and the Jewish Relief Agency Annual Award.
Gerard holds his Bachelor of Arts degree in Economics from Villanova University and earned his Masters of Business Administration from St. Joseph’s University in Philadelphia. He and his family reside in Rosemont, Pennsylvania.
About Beneficial Bank
Founded in 1853, Beneficial Bank is the oldest and largest bank headquartered in Philadelphia. It is a community-based, full-service financial services company that has served individuals and businesses in the Delaware Valley for 165 years. With 60+ offices in the greater Philadelphia and South Jersey regions and $5.8 billion in assets, Beneficial offers a full array of financial products that includes commercial, consumer, SBA, leasing, real estate lending and insurance. Visit www.thebeneficial.com for more information.
Prior to joining the KU faculty, Professor DeYoung was an Associate Director of Research at the Federal Deposit Insurance Corporation, an Economic Advisor at the Federal Reserve Bank of Chicago, a Senior Economist at the Office of the Comptroller of the Currency, and a Joyce Foundation Teaching Fellow at Beloit College.
Professor DeYoung is co-editor of the Journal of Money, Credit and Banking. He has twice testified before the United States Senate on bank regulatory issues. In 2015 he was named a Distinguished Scholar by the French Finance Association for “Outstanding Contributions to the Field of Finance and Banking.” He is a past President of the Southern Finance Association.
DeYoung was born and raised in New Jersey, where he worked his way through college at Rutgers University-Camden. He holds a PhD in economics from the University of Wisconsin-Madison. He lives on a ranch near Baldwin City, Kansas with his lovely wife Julie and many other domesticated animals.
Today, Carrollton Bank has ten locations, including eight in the St. Louis MSA and two in central Illinois, and assets of$1.6 billion. Virtually all of the bank's
growth has been organic in nature. Carrollton remains a privately-held, owner operated company, with the majority of its shareholders being full-time employees, who serve customers and build long-term relationships on a daily basis.
Tom is a board member of the Regional Business Council, the Foundation for Barnes-Jewish Hospital, the Jefferson National Parks Association, the University of Illinois Dean's Business Council, and the Lewis & Clark Community College Foundation. He's a past chairman of the Illinois Bankers Association.
Tom and his wife Suzanne and family have lived in St. Louis for several years. Suzanne is Director of Community Development at Carrollton Bank. Their son Tom is a vice president at Carrollton Bank, and their other son John is a freelance sports journalist.
After experiencing 9/11 in person while working in downtown Manhattan, Trey’s commitment to developing quality relationships has defined both his personal and professional life. He is inspired to model these and other core values for his two sons, and exceed expectations daily at Lewis & Clark Bank, a company he helped take from concept to reality.
Trey is heavily involved in state and national banking associations, and serves on multiple advisory and fiduciary boards of both for-profit and nonprofit organizations, including: Chairman of Synergy by Association, Inc.; Chairman of the American Bankers Association's Community Bankers Council; advisory board member of the Conference of State Bank Supervisors; board member of the Oregon Bankers Association; board member of the Community Banks of Oregon; board member of Sheltered Harbor; advisory board member of StoneCastle Partners; advisory board member of Anvil Media; and past board member of Entrepreneurs’ Organization (Portland).
Trey received a bachelor’s degree in business administration from Portland State University and is a licensed certified public accountant. In 2007, he was recognized as one of the “Forty under 40” by the Portland Business Journal.
Ms. McWilliams was Executive Vice President, Chief Legal Officer, and Corporate Secretary for Fifth Third Bank in Cincinnati, Ohio. Prior to joining Fifth Third Bank, Ms. McWilliams worked in the United States Senate for six years, most recently as Chief Counsel and Deputy Staff Director with the Senate Committee on Banking, Housing and Urban Affairs, and previously as Assistant Chief Counsel with the Senate Small Business and Entrepreneurship Committee. From 2007 to 2010, Ms. McWilliams served as an attorney at the Federal Reserve Board of Governors. Before entering public service, she practiced corporate and securities law at Morrison & Foerster LLP in Palo Alto, California, and Hogan & Hartson LLP (now Hogan Lovells LLP) in Washington, D.C.
Ms. McWilliams graduated with highest honors from the University of California at Berkeley with a B.S. in political science, and earned her law degree from U.C. Berkeley School of Law.
Dr. Mester was born in Baltimore, MD. She graduated summa cum laude with a bachelor of arts degree in mathematics and economics from Barnard College of Columbia University. She earned M.A. and Ph.D. degrees in economics from Princeton University, where she was a National Science Foundation Fellow.
Prior to being named president and chief executive officer of the Federal Reserve Bank of Cleveland, Dr. Mester had been executive vice president and director of research at the Federal Reserve Bank of Philadelphia, where she was the chief policy advisor, attended meetings of the Federal Open Market Committee, and oversaw the economists and analysts in the Research Department, as well as professionals in the Financial Statistics Department and the Payments Cards Center. She joined the Federal Reserve Bank of Philadelphia in 1985 as an economist, becoming senior vice president and director of research in 2000, and executive vice president and director of research in 2010.
Dr. Mester is an adjunct professor of finance at the Wharton School of the University of Pennsylvania and is a fellow at the Wharton Financial Institutions Center. She has also taught in the undergraduate finance and M.B.A. programs at Wharton and in the Ph.D. program in finance at New York University.
Her areas of research expertise and interest include the organizational structure and productive efficiency of financial institutions, financial intermediation and regulation, agency problems in credit markets, credit card pricing, central bank governance, and inflation. Dr. Mester has published numerous articles in refereed academic and professional journals on a variety of topics including economics, central banking, and financial issues. In addition, Dr. Mester is managing editor of the International Journal of Central Banking and co-editor of the Journal of Financial Services Research; and is an associate editor of several other academic journals.
Dr. Mester is a director of the Greater Cleveland Partnership, a trustee of the Cleveland Clinic, a trustee of the Musical Arts Association (Cleveland Orchestra), a director of the Council for Economic Education, a founding director of the Financial Intermediation Research Society, and a member of the advisory board of the Financial Intermediation Network of European Studies (FINEST). She is a member of the American Economic Association, the American Finance Association, the Econometric Society, and the Financial Management Association International.
Gilda is a strong industry advocate and demonstrates her passion and belief in the responsibility of buisiness leaders giving back to the communities they are a part of through personal example. Gilda is past chair of the Massachusetts Bankers Association (2016-2017), member of the American Bankers Association Banker Advocacy and Grassroots Committee; Chair of the Federal Reserve Bank of Boston’s Community Depository Institutions Advisory Council (CDIAC), and President of the Federal Reserve’s Community Depository Institutions Advisory Council at a national level representing the First District; and member of the Board of the Depositors Insurance Fund. Gilda supports numerous causes and organizations focused on improving the quality of life in the communities served by the bank. She is past president of the Somerville Rotary Club and continues her membership on the Rotary Club of Somerville as Board Member and Secretary, serves the Cambridge YMCA as member of the Board of Trustees and Treasurer, Advisory Board Member of Little Sisters of the Poor, and is passionate for helping those less fortunate, be it as a volunteer cook or by helping the homeless by preparing care packages for distribution by local organizations.
Gilda is a graduate of Lesley University, and a graduate of the National School of Banking – America’s Community Bankers at Fairfield University, and the New England School of Banking – Massachusetts Bankers Association at Babson.
Gilda has received various awards including Bankers and Tradesman “Women of Fire” (2013); Paul Harris Fellow by Rotary International (2014); Girl Scouts “Lady Baden-Powell Award” (2015); Good Neighbor/Community Hero Award by the New England Financial Marketing Association (NEFMA) (2016); and named in Top 100 Women-Led Businesses in Massachusetts by The Commonwealth Institute and the Boston Globe Magazine (2017).
Though modest about her professional accomplishments, she is quick to voice both pride and appreciation of her family. She is a mother of four adult children and a grandmother of seven. Gilda resides in Medford, Massachusetts with her husband of 38 years.
Prior to his appointment to the Board, Mr. Quarles was founder and managing director of the Cynosure Group, a Utah-based investment firm. Before founding the Cynosure Group, Mr. Quarles was a partner at The Carlyle Group, a private equity firm based in Washington, DC.
From September 2005 to November 2006, Mr. Quarles served as Under Secretary of the Treasury for Domestic Finance. Prior to serving as Under Secretary, from April 2002 to August 2005, Mr. Quarles was Assistant Secretary of the Treasury for International Affairs. During his tenure, Mr. Quarles served as policy chair of the Committee on Foreign Investment in the United States. Prior to joining the Department of the Treasury, Mr. Quarles served, from August 2001 to April 2002, as the U.S. Executive Director of the International Monetary Fund.
From January 1991 to January 1993, he served in the Treasury Department as a Special Assistant to the Secretary of the Treasury for Banking Legislation and as Deputy Assistant Secretary of the Treasury for Financial Institutions.
Prior to, and in between, his service at the Department of the Treasury, Mr. Quarles was a partner at Davis Polk & Wardwell, serving in their New York and London offices.
Mr. Quarles was born in September 1957. He received an A.B. in philosophy and economics, summa cum laude, from Columbia in 1981 and earned a law degree from the Yale Law School in 1984.
Mr. Quarles is married with three children.
Rodney Ramacharan is the Associate Professor of Finance and Business Economics (tenured), Marshall School of Business, University of Southern California and Director of Research, USC Lusk Center for Real Estate. Previously, Ramcharan worked at the Board Governors of the Federal Reserve System, serving as the first chief of the Systemic Financial Institutions and Markets Section (2012-2015). In that role, I helped develop analyses to understand better the role of financial institutions in the US economy, and contributed to the regulatory policy discussions at both the Federal Reserve and at Basel. I also worked for the International Monetary Fund from 2000-2010 during which I contributed to policy discussions on exchange rates and monetary policy in emerging markets such as South Africa and in a number of developing economies. I also served on the editorial board of Finance and Development and have been a visiting scholar at the Dutch National Bank and the Federal Reserve Bank of Philadelphia and served as a consultant to the Swedish Riksbank. Much of my research agenda has been shaped by the important policy questions I have encountered at these institutions.
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.