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On Oct. 2-3, the Federal Reserve Bank of St. Louis, the Conference of State Bank Supervisors and the Federal Reserve System co-hosted the first annual community banking research conference, Community Banking in the 21st Century. The conference focused on the opportunities and challenges facing the community banking industry.
The conference featured remarks from Fed Chairman Ben Bernanke and St. Louis Fed President James Bullard and keynote speeches from Fed Gov. Jerome Powell and Cape Cod Five Cents Savings Bank President and CEO Dorothy Savarese. Attendees also heard presentations of the latest academic research on community banking. In all, 12 papers were presented over the course of three sessions: the role of community banks, community bank performance and supervision and regulation of community banks. Summaries of the research papers can be found below.
Capping off the conference was a presentation of the results of a series of town hall meetings, during which bankers from across the country gathered to discuss the state of community banking. More than 1,700 bankers from 28 states participated in the town hall events, which ultimately culminated in the publication, “Community Banking in the 21st Century: Opportunities, Challenges and Perspectives.”
For more information about the conference, see the Central View column by Julie Stackhouse, senior vice president of Banking Supervision, Credit, Community Development and Learning Innovation for the St. Louis Fed, or visit www.stlouisfed.org/CBRC2013. The next conference will be held in 2014 at the St. Louis Fed. Details about next year’s conference will be available in a future issue of Central Banker.
The authors find a negative relationship between bank distance and the likelihood of using bank financing to finance operations.
Banks participating in equipment lease financing (ELF) had better performance metrics than community banks in general, suggesting that ELF may be an untapped opportunity.
Recent bank failures were followed by significantly lower income and compensation growth, higher poverty rates and lower employment.
The authors conclude that loan defaults are lower in communities arguably expected to have large amounts of inexpensive soft information and at banks likely to have a high level of personal knowledge about their customers.
The authors find that derivative use at community banks increased profitability over the period 2003–2012, and banning its use would have hurt banks, making them more vulnerable to interest rate risk and credit risk.
The authors find that long-distance acquisitions are less profitable and riskier than near-distance acquisitions for the three years following the transaction.
The authors find that variables under bank control generally have much bigger effects on profitabilities than variables not under bank control.
The authors find that standards in assigning CAMELS ratings were consistent across the period 1991-2011.
The authors conclude that while it is currently impossible to quantify the impact of the Dodd-Frank Act, enough burdens have been placed on community banks that a deeper look at the federal regulatory system is needed.
The authors show that the majority of failed community banks would have been considered well-capitalized even two years prior to failing. Capital at these banks didn’t begin dropping until about one year prior to failing.
The authors present the Dallas Fed Financial Reform Plan for resolving the “too big to fail” issue.
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Fed in Print: An index of the economic research conducted by the Fed.