Federal Reserve System and the Conference of State Bank Supervisors

Community Banking in the 21st Century

October 3, 2013, Federal Reserve Bank of St. Louis

Andrew Meyer, Lessons from Community Banks that Recovered from Financial Distress

previous  view previous video in this series | view next video in this series  next

Andrew Meyer, a senior economist at the Supervisory Policy and Risk Analysis unit at the Federal Reserve Bank of St. Louis, presents his paper “Lessons from Community Banks that Recovered from Financial Distress,” co-written with Alton Gilbert and James Fuchs, both at the St. Louis Fed. The paper is a follow-up to their previous paper “The Future of Community Banks: Lessons from Banks that Thrived during the Recent Financial Crisis,” which examined the attributes of community banks maintaining a CAMELS rating of 1 over the period 2006-2011. Similarly, the current paper examines the attributes of banks that were downgraded to a CAMELS rating of 4 or 5 during the period 2006-2011 and subsequently recovered by the end of the first quarter of 2013. The authors find that many recoveries were aided by a change in ownership and/or management and a return to core banking principles and conservative underwriting standards.

Lessons from Community Banks that Recovered from Financial Distress(PDF)

Abstract:This project is a follow-up to our recent report, “The Future of Community Banks: Lessons From Banks that Thrived During the Recent Financial Crisis,” which appeared in the March/April edition of the Federal Reserve Bank of St. Louis’ Review. In our previous work, we studied the attributes of banks that maintained a CAMELS rating of 1 throughout the financial crisis years of 2006 to 2011. We showed a variety of statistically significant balance-sheet ratios and other attributes that were different between these “thriving” banks and other banks that survived the financial crisis but did not maintain the highest supervisory rating. We followed up the statistical analysis with interview evidence from a sample of thriving bankers to determine what they considered to be the keys to their success. We are taking a similar path with the current project, but instead of studying the essential factors for maintaining health, we are identifying the essential factors for regaining health after suffering significant safety-and-soundness problems. To that end, we have identified a sample of 1,376 commercial banks under $10 billion in assets that were downgraded to a CAMELS rating of either 4 or 5 during the sample period of 2006 to 2011.

Conference Videos

Welcome & Overview (Oct. 2)
Moderator: Julie Stackhouse (5:29)

Opening Remarks
John Ryan (4:58)
James Bullard (4:39)
Ben Bernanke (8:40)

Research Session 1: The Role of Community Banks
Research Session 1 Moderator: Scott E. Hein (5:35)
Do Community Banks Play a Role in New Firm Survival? (Smith Williams) (18:27)
Equipment Lease Financing: The Role of Community Banks (Mohammed Khayum) (13:24)
Equipment Lease Financing: The Role of Community Banks (Charles Kelly) (14:03)
Small Business Lending and Social Capital: Are Rural Relationships Different? (Kenneth Spong) (25:08)
Bank Failure, Relationship Lending and Local Economic Performance (John Kandrac) (22:32)
Q&A (16:07)

Evening Keynote Address
Dorothy Savarese (38:04)

Community Banking Performance (Oct. 3)
Moderator: Richard Brown (5:07)
Financial Derivatives at Community Banks (Shelly Shen) (11:12)
Lessons from Community Banks that Recovered from Financial Distress (Andrew P. Meyer) (22:40)
The Effect of Distance on Community Bank Performance Following Acquisitions and Reorganizations (Timothy J. Yeager) (20:43)
Performance of Community Banks in Good Times and Bad Times: Does Management Matter? (Dean F. Amel) (17:02)
Research Session 2 Question and Answer Period (21:41)

Supervision and Regulation of Community Banks
Moderator: Lamont Black (4:09)
Estimating Changes in Supervisory Standards and Their Economic Effects (William F. Bassett) (17:23)
The Impact of Dodd-Frank on Community Banks (Tanya D. Marsh) (15:39)
Capital Regulation at Community Banks: Lessons from 400 Failures (Robert R. Moore) (14:39)
A Failure to Communicate: The Pathology of Too Big to Fail (Harvey Rosenblum) (18:15)
Research Session 3 Moderator Wrap-up (14:43)
Audience Question and Answer Session (14:46)

Afternoon Keynote Presentation
Federal Reserve Governor Jerome Powell (28:27)

Panel Discussion and Presentation of Results from Town Hall Sessions
Presenter: Mike Stevens (13:20)

Panel Discussion: Community Banking in the 21st Century: Opportunities, Challenges and Perspectives
Moderator: Charles A. Vice (13:32)
Curt Hecker (7:38)
Bobby P. Martin (12:24)
Thomas E. Spitz (8:30)
Claire W. Tucker (9:14)
Community Banking Panel Question and Answer Period (1:04:29)
Julie Stackhouse, Closing Remarks (11:13)

Conference of State Bank Supervisor