The Performance of FDIC-Identified Community Banks

Athina Petropoulou, Vasileios Pappas, Steven Ongena, Dimitrios Gounopoulos and Richard J. Fairchild
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Athina Petropoulou: University of Sussex Business School
Vasileios Pappas: University of Surrey - Surrey Business School
Dimitrios Gounopoulos: University of Bath - School of Management
Richard J. Fairchild: University of Bath - School of Management

No 24-61, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The US Federal Deposit Insurance Corporation (FDIC) recently redrew its criteria to identify community banks by including location and business strategy. We analyze the resultant re-classification of community banks and show it affects a wide array of salient outcomes. FDIC-included community banks exhibit superior stability and efficiency while facing reduced credit and liquidity risks compared to non-community banks. Higher residential mortgage proportions reduce credit risk and enhance stability. Newly designated community banks should not expect immediate financial advantages. Higher core deposit ratios improve stability, profitability, and efficiency for banks that just entered the community banking universe. During the Covid-19 crisis, FDIC-included community banks retain their financial stability and profitability. Community banks derive cost efficiency from market structure and organizational factors rather than managerial skills. Long-term cost efficiency varies across states, with smaller community banks being more efficient, especially in states favoring traditional banking practices and local relationships, such as the Midwest and Southeast regions.

Keywords: Community banks; Federal Deposit Insurance Corporation (FDIC); Long-run efficiency; Short-run efficiency; Stochastic Frontier Analysis; Lasso (search for similar items in EconPapers)
JEL-codes: G14 G21 G38 (search for similar items in EconPapers)
Pages: 91 pages
Date: 2024-11
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Related works:
Journal Article: The performance of FDIC-identified community banks (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2461

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