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
Commissioner, Mississippi Department of Banking and Consumer Finance; chairman, Conference of State Bank Supervisors - CSBS
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
President and CEO, Montecito Bank and Trust, Santa Barbara, CaliforniaDid 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 LendingWenhua Di, Federal Reserve Bank of DallasSimilarities 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
Chairman,Conference of State Bank Supervisors (CSBS); Director of Banking, South Dakota Division of BankingCase 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.CSBS Community Banking Case Study Competition Moderated Q&A
- Thursday, October 4
Breakfast and Networking
Research Paper Session 2
Competition in BankingCommunity Bank Discussant: Gilda Nogueira
President and Chief Executive Officer, East Cambridge Savings Bank, Cambridge, Mass.The Effects of Competition in Consumer Credit MarketsStefan Gissler, Board of Governors of the Federal Reserve SystemThe Competitive Effects of Megabanks on Community BanksTroy Kravitz, federal-deposit-insurance-corporation---fdicDepositors Disciplining Banks: The Impact of ScandalsMikael Homanen, Cass Business School, City, University of LondonCompetition in Banking: Moderated Q&A
Research Paper Session 3
Bank Management and PerformanceModerator: Elizabeth K. Kiser
Associate Director and Economist, Board of Governors of the Federal Reserve SystemCEO Succession and Performance at Rural BanksMike Milchanowski, Federal Reserve Bank of St LouisStress Testing Community BanksRobert DeYoung, University of KansasTechnology Investment, Firm Performance and Market Value: Evidence from BanksZifeng Feng, Florida International University
Panel Discussion: The Future of Community Banking
Research Papers, Authors and Key Findings
Research Paper Session 1
Small Business Lending
Author: Rebel Cole, Florida Atlantic University
Key Findings: The author finds that, despite a recovery of overall business lending by U.S. banks after the financial crisis, small business lending remained depressed, particularly among large banks and banks in worse financial condition.
How Important are Local Community Banks to Small Business Lending? Evidence from Mergers and Acquisitions
Key Findings: This paper finds that acquisitions of community banks by non-local acquiring banks (without a local presence) lead to declines in local small business lending. The authors describe this finding as consistent with a redirection of funding for small business loans to localities served by the acquirer. They conclude that the diminishing presence of local community banks has led to credit gaps that are not being filled by the rest of the banking sector.
Key Findings: This paper examines the impact of remote lenders on the supply of small business loans guaranteed by the Small Business Administration. Results suggest that the entry of a large remote lender into specific industries generates significant growth in lending with little evidence of a reduction in loans by incumbent SBA lenders. Further analysis indicates that remote lenders have greater market share in counties where SBA loans from traditional banks were less common.
Similarities and Differences in Small Business Lending Between Small and Large Banks: Findings from the Small Business Lending Survey
Key Findings: 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).
Small Business Lending: Moderated Q&A
Research Paper Session 2
Competition in Banking
Author: Stefan Gissler, Board of Governors of the Federal Reserve System
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.
Author: Troy Kravitz, federal-deposit-insurance-corporation---fdic
Key Findings: This paper examines the effects of big bank merger activity of small bank health. The authors show that big banks are expanding primarily within urban areas. While small banks are doing relatively worse in these areas, big bank expansion is actually helping small banks by removing a competitor from their market.
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."
Competition in Banking: Moderated Q&A
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.
Key Findings: The authors present a “top-down” stress testing model specifically developed for community banks. The model, which relies solely on publicly available data, offers community banks the opportunity to analyze risks from a perspective that otherwise could be prohibitively expensive for them to consider.
Author: Ivan Lim, Leeds University
Key Findings: This paper provides evidence of a “favoritism bias” by which banks make more loans, and open more branches, in areas near the birthplaces of their CEOs. Favoritism is stronger among altruistic CEOs, in struggling areas and among marginal mortgage applicants.
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.
Bank Management and Performance: Moderated Q&A
Speakers and Panelists
Bret Afdahl was appointed director of the South Dakota Division of Banking in May 2011 after serving as counsel to the division since October 2006. Afdahl is the current chair of the Conference of State Bank Supervisors (CSBS), the nation’s leading advocate for the state banking system and the only national organization dedicated to advancing the state banking system. Prior to joining the division, Afdahl worked on the legal staff at the South Dakota Department of Revenue and Regulation on a variety of tax and compliance issues. He is a graduate of Northern State University with a degree in political science and business, a graduate of the University of South Dakota School of Law, and holds a certification as a fiduciary and investment risk specialist (CFIRS) from the Cannon Financial Institute.
James Bullard is the president and CEO of the Federal Reserve Bank of St. Louis. In that role, he is a participant on the Federal Reserve’s Federal Open Market Committee (FOMC), which meets regularly to set the direction of U.S. monetary policy. He also oversees the Federal Reserve’s Eighth District, including activities at the St. Louis headquarters and its branches in Little Rock, Arkansas, Louisville, Kentucky, and Memphis, Tennessee. A noted economist and policymaker, Bullard makes Fed transparency and dialogue a priority on the international and national stage as well as on Main Street. He serves on the board of directors of the St. Louis Regional Chamber and the board of directors of Concordance Academy of Leadership, and he is a past board chair of the United Way U.S.A. Bullard is co-editor of the Journal of Economic Dynamics and Control, and a member of the Central Bank Research Association’s senior council. He is an honorary professor of economics at Washington University in St. Louis, where he also sits on the advisory council of the economics department and the advisory board of the Center for Dynamic Economics. A native of Forest Lake, Minnesota, Bullard received his doctorate in economics from Indiana University in Bloomington.
Rebel A. Cole serves as the Kaye Family Endowed Chair of Finance at the College of Business at Florida Atlantic University, Boca Raton, Fla., where he has taught since 2016. Previously, he was a professor of finance at DePaul University in Chicago, the University of New South Wales in Sydney, Australia, and the University of Auckland in New Zealand. He has also served as an economist for the Federal Home Loan Bank Board, the Federal Reserve Bank of Dallas and the Board of Governors of the Federal Reserve System in Washington, D.C. His primary areas of research are commercial banking, corporate governance, financial institutions, real estate and small-business finance. He has published peer-reviewed articles in academic journals that include the Journal of Finance, the Journal of Financial Economics, the Journal of Financial and Quantitative Analysis, the Journal of Financial Intermediation, the Journal of Corporate Finance Journal of Banking and Finance, the Journal of Real Estate Finance and Economics, and Real Estate Economics. He received his Doctorate in finance from the Kenan-Flagler School of Business at the University of North Carolina.
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.
She was born in Los Angeles and graduated from Marymount High School. She attended UCLA and holds B.A. and M.A. degrees from California State University Northridge. She moved to Santa Barbara in 2002 to attend the Gevirtz Graduate School of Education, UC Santa Barbara to earn a Ph.D. Her educational pursuits were put on hold when she joined Montecito Bank & Trust in 2004. In 2006 she became CEO & President and in 2017 accepted the role of Chairman of the Board and continues her role as CEO. In 2022 Fielding University awarded Janet the Honorary Degree of Doctor of Philosophy in Humane Letters for her leadership and contributions to Fielding and the community.
Janet actively contributes her time and talent to local non-profits as well as industry associations. She currently chairs the Santa Barbara Symphony Board of Directors, and serves on the Sansum Board of Trustees (past Chair), the Scholarship Foundation of Santa Barbara Board of Directors (past Chair) and the Board of the Santa Barbara South Coast Chamber of Commerce.
She has previously served in different capacities with Women’s Economic Ventures, CALM, United Way, Music Academy of the West, the Santa Barbara Library, California State University Channel Islands, Habitat for Humanity, Fielding University, American Heart Association, PublicSquare and many others.
She also serves on industry boards including the Pacific Business Management Institute of Pacific Coast Banking School and the Board of the American Bankers Association Foundation Board. She has previously served on the Community Depository Institutions Advisory Council of the Federal Reserve Bank’s 12th District (CDIAC) and served as the Chair of the council in 2017 and 2018 and as the National CDIAC Chair in 2018.
In her spare time, Janet enjoys running, gardening and cooking. She loves spending time with her two sons and their families…especially her grandchildren!
Awards and accolades include: Santa Barbara Woman of the Year (2017), American Banker – 25 Most Powerful Women to Watch (2015, 2017), Pacific Coast Business Times - Top 50 Women in Biz (2007 – 2021), California State University Northridge Distinguished Alumna of the Year 2018, Pacific Coast Business Times Inaugural Distinguished Achievement Award (2018), Association of Fundraising Professionals – Volunteer of the Year (2015), United Way Abercrombie Community Excellence Award (2015), American Heart Association - Lifestyle Change Award (2013), Girls Inc. (Carpinteria) - Women of Inspiration Award (2012), Santa Barbara Chamber Businesswoman of the Year (2010), and Pierre Claeyssens Award for Distinguished Service (2010).
Kate Hao is the CEO of New York City-based Happy Mango, which she founded in 2013 to bring greater transparency to credit reporting. Kate was previously the treasurer of the broker-dealer subsidiary of Morgan Stanley, where she worked for over 12 years across various functions. While working as a bond trader during the 2008 crisis, she recognized the limitations of existing consumer credit reporting systems, which provided information about a problem only after the problem had occurred. Her training in fundamental financial analysis enabled her to develop a forward-looking consumer credit assessment algorithm that lay the foundation of the Happy Mango Score computation. Her executive experience in managing large teams and complex projects ultimately led to her decision to bring her idea forward and form Happy Mango. She earned her MBA from Harvard Business School and her Bachelor of Arts in Accounting from Albion College. She is a Chartered Financial Analyst (CFA), Certified Public Accountant (CPA) and Financial Risk Manager (FRM).
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.
Troy Kravitz is a senior financial economist with the Center for Financial Research with the Federal Deposit Insurance Corp. He joined the Center in 2013 after completing his Ph.D. at the University of California, San Diego, where he also received his Master of Arts in Economics. At UCSD, he studied game theory and applied microeconomic theory, particularly industrial organization and political economy. He also taught two courses in intermediate econometrics. Before graduate school, Troy worked for the Urban-Brookings Tax Policy Center and the AEI-Brookings Joint Center for Regulatory Studies. He studied at Emory University and the London School of Economics.
Mike Milchanowski is a supervisory officer in the Supervision division of the Federal Reserve Bank of St. Louis. He is currently responsible for the division’s Statistics and Reserves Administration units, and has oversight of the division’s quality assurance program. In his prior role with the St. Louis Fed, Milchanowski led the Supervisory Policy and Risk Analysis team and was a member of the Community Banking in the 21st Century research and policy conference planning group. Prior to joining the St. Louis Fed, Milchanowski served as an assistant vice president at M&T Bank, where he was responsible for commercial credit risk modeling, including the development of the institution’s probability of default and loss-given default models, as well as CCAR and CapPR Federal Reserve stress testing programs.He holds an MBA from the University of Maryland and a Bachelor of Science in financial economics from the University of Maryland, Baltimore County.
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.
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.
Gregory F. Udell is the Chase Chair of Banking and Finance at the Kelley School of Business at Indiana University. He is, or has been, a visiting economist, scholar and/or consultant to the Board of Governors of the Federal Reserve System, the Bank of Japan, the Bank of Italy, the European Central Bank, the Federal Reserve Banks of Chicago and San Francisco, the International Finance Corp., the Organisation for Economic Co-operation and Development, the People's Bank of China, the Riksbank and the World Bank. Before joining the Kelley School of Business in 1998, he was a professor of finance and director of the William R. Berkley Center for Entrepreneurial Studies at the Stern School of Business at New York University. Prior to his academic career, Udell was a commercial loan officer in Chicago. His work focuses mostly on financial contracting, credit availability and financial intermediation and it has been published in nearly 100 publications, including leading accounting, economics and finance journals. He is the author of a textbook on asset based lending, Asset-Based Finance (2004), a co-author (with L. Ritter and W. Silber) of Principles of Money, Banking and Financial Markets, 12th edition (2009), and is, or has been, an associate editor/editorial board member of seven academic journals including the Journal of Money, Credit and Banking, the Journal of Banking and Finance, the Journal of Financial Services Research and Small Business Economics.