The State and Fate of Community Banking

Harvard University, John F. Kennedy School of Government, M-RCBG Associate Working Paper No. 37, 2015

32 Pages Posted: 11 May 2020

See all articles by Marshall Lux

Marshall Lux

Harvard University - Harvard Kennedy School (HKS)

Robert Greene

Program on International Financial Systems

Date Written: 2015

Abstract

This working paper focuses on the plight of community banks in the United States. It begins by examining different definitions of what constitutes a community bank, and goes on to review what makes these institutions unique and distinguishes them from larger regional or national peers. Our assessment of Federal Deposit Insurance Corporation data finds that community banks service a disproportionately large amount of key segments of the U.S. commercial bank lending market – specifically, agricultural, residential mortgage, and small business loans. However, community banks’ share of U.S. banking assets and lending markets has fallen from over 40 percent in 1994 to around 20 percent today. Interestingly, we find that community banks emerged from the financial crisis with a market share 6 percent lower, but since the second quarter of 2010 – around the time of the passage of the Dodd-Frank Act – their share of U.S. commercial banking assets has declined at a rate almost double that between the second quarters of 2006 and 2010. Particularly troubling is community banks’ declining market share in several key lending markets, their decline in small business lending volume, and the disproportionate losses being realized by particularly small community banks. We review studies on the impact of regulation, consumer trends and other factors on community banks, and examine the consequences of consolidation on U.S. lending markets. We conclude with a discussion of policies that could promote a more competitive and robust banking sector.

Keywords: Community Banks, Dodd-Frank, Basel III, Agricultural Lending, Small Business, Commercial Lending, Capital Regulation

JEL Classification: G21, G28, K23

Suggested Citation

Lux, Marshall and Greene, Robert, The State and Fate of Community Banking (2015). Harvard University, John F. Kennedy School of Government, M-RCBG Associate Working Paper No. 37, 2015, Available at SSRN: https://ssrn.com/abstract=2913096 or http://dx.doi.org/10.2139/ssrn.2913096

Marshall Lux

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Robert Greene (Contact Author)

Program on International Financial Systems ( email )

134 Mt Auburn St.
Cambridge, MA 02138
United States

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