2018 Community Banking in the 21st Century Research and Policy Conference

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

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

Authors: Julapa Jagtiani, Federal Reserve Bank of Philadelphia; Raman Maingi, Federal Reserve Bank of Philadelphia

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.

Remote Competition and Small Business Loans: Evidence from SBA Lending

Authors: Wenhua Di, Federal Reserve Bank of Dallas; Nathaniel Pattison, Southern Methodist University

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

Authors: Yan Lee, Federal Deposit Insurance Corporation (FDIC); Jacob Goldston, federal-deposit-insurance-corporation---fdic; Smith Williams, Federal Deposit Insurance Corporation (FDIC)

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

The Effects of Competition in Consumer Credit Markets

Author: Stefan Gissler, Board of Governors of the Federal Reserve System

Key Findings: 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.    

The Competitive Effects of Megabanks on Community Banks

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.

Depositors Disciplining Banks: The Impact of Scandals

Author: Mikael Homanen, Cass Business School, City, University of London

Key Findings: 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

CEO Succession and Performance at Rural Banks

Authors: Mike Milchanowski, Federal Reserve Bank of St Louis; Drew Dahl, Federal Reserve Bank of St Louis

Key Findings: 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.

Stress Testing Community Banks

Authors: Robert DeYoung, University of Kansas; Joseph Fairchild, University of Kansas)

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.

Home Biased Credit Allocations

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.

Technology Investment, Firm Performance and Market Value: Evidence from Banks

Authors: Zifeng Feng, Florida International University; Zhonghua Wu, Florida International University

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