Dwarf Banks

27 Pages Posted: 9 Mar 2016

Date Written: May 5, 2013


This study examines the business model and the viability of very small commercial banks in emerging market context. Using a unique sample of 141 Russian banks with less than a $10 million in assets, I trace performance, survival, recapitalization and growth patterns of these dwarf banks in response to the sharp increase in the minimum capital requirements. I find that dwarf banks are, on average, low-risk financial intermediaries that perform simple operations and have significantly higher survival rates in local markets with poor economic and banking services outreach characteristics. I also find that the average dwarf banks withstand the regulatory capital shock surprisingly well by securing fresh capital injection followed by a twofold asset size increase. The results of this study contribute to the literature on the relationship between the small bank business model, local banking markets characteristics and long-term viability. They also provide new evidence on the expected and unexpected outcomes of the “too small to survive” regulatory intervention into the banking market size structures.

Keywords: small banks, “too small to survive,” bank capital requirements, emerging market banking, Russia

Suggested Citation

Chernykh, Lucy, Dwarf Banks (May 5, 2013). Journal of Banking and Finance, Vol. 38, 2014, Available at SSRN: https://ssrn.com/abstract=2745286

Lucy Chernykh (Contact Author)

Clemson University ( email )

School of Accountancy and Finance
Clemson, SC 29634
United States

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