The Efficiency of FDIC-Identified Community Banks

92 Pages Posted: 1 Apr 2020 Last revised: 2 May 2022

See all articles by Athina Petropoulou

Athina Petropoulou

SOAS University of London

Vasileios Pappas

University of Kent, Kent Business School

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Dimitrios Gounopoulos

University of Bath

Richard J. Fairchild

University of Bath - School of Management

Date Written: April 30, 2021

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. The thus-defined community banks are one-fifth more cost-efficient than other banks. Most of this efficiency advantage finds its origin in market structure, regulatory, and business environment factors, with corresponding substantial state-level heterogeneity. Community banks fare especially better when competing with large non-community banks and where financial access is limited.

Keywords: Bank business model, Community banks, Liquidity creation, Persistent efficiency, Residual efficiency, Stochastic Frontier Analysis

JEL Classification: G14, G21, G38

Suggested Citation

Petropoulou, Athina and Pappas, Vasileios and Ongena, Steven R. G. and Gounopoulos, Dimitrios and Fairchild, Richard J., The Efficiency of FDIC-Identified Community Banks (April 30, 2021). Available at SSRN: https://ssrn.com/abstract=3550458 or http://dx.doi.org/10.2139/ssrn.3550458

Athina Petropoulou

SOAS University of London ( email )

London, WC1E 7HU
United Kingdom
07930084823 (Phone)
WC1H 0XG (Fax)

Vasileios Pappas (Contact Author)

University of Kent, Kent Business School ( email )

Canterbury, Kent CT2 7PE
United Kingdom

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Dimitrios Gounopoulos

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Richard J. Fairchild

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
01225 323456 (Phone)
01225 323902 (Fax)

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