Unexpected Gains: How Fewer Community Banks Boost Local Investment and Economic Development

Bernadette A. Minton, Alvaro G. Taboada and Rohan Williamson
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Bernadette A. Minton: Ohio State U
Alvaro G. Taboada: Mississippi State U
Rohan Williamson: Georgetown U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Our research examines the impact of dwindling community bank numbers on community investment and economic development. Initially, we confirm the vital role of community banks’ small business lending in local development. Contrary to popular belief, we find that a decrease in the number of community banks has a positive impact on community investment through increased small business loan (SBL) originations. Key factors include the local presence of other community banks and the continuity of the consolidating bank's presence. Interestingly, while there is no differential effect in underserved or distressed counties, the effect diminishes when a large bank acquires a community bank without maintaining a local presence. Post-consolidation, community banks emerge larger and more robust, capable of issuing larger SBLs, while larger banks and Fintech firms contribute by providing smaller SBLs. Overall, our findings reinforce the critical contribution of community banks to local development, suggesting that a reduction in their numbers leads to a stronger, more stable banking infrastructure in the small business lending landscape.

JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2024-08

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