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The economic performance of small banks, 1985-2000

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Abstract

Several trends in the financial industry over the past decade and a half have potentially threatened the competitiveness of small banks. Among these developments are the numerous mergers that increased the size and scope of large banks and the increased competition from mutual funds and other nonbank financial institutions. This article examines the economic performance of small banks during the 1985-2000 period by focusing on their ability to attract and profitably intermediate insured and uninsured deposits. It finds that the expansion of deposits and assets at small banks, when adjusted to account for the effects of mergers on measured growth, has consistently exceeded the growth at large banks. Moreover, the profitability of small banks has risen to high levels over the period. These indications of strength among small banks as a whole also hold true for subgroups within the small bank sector. Aside from their success in attracting deposits, the key reasons for the generally good performance of small banks in recent years appear to be their ability to earn relatively high rates of return on their loans and an increase in the share of their portfolios devoted to loans.

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  • William F. Bassett & Thomas F. Brady, 2001. "The economic performance of small banks, 1985-2000," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 87(Nov), pages 719-728, November.
    • Handle: RePEc:fip:fedgrb:y:2001:i:nov:p:719-728:n:v.87no.11
    DOI: 10.17016/bulletin.2001.87-11
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    File URL: http://www.federalreserve.gov/pubs/bulletin/2001/1101lead.pdf
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    Cited by:

    1. Joy Begley & Sandra L. Chamberlain & Yinghua Li, 2006. "Modeling Goodwill for Banks: A Residual Income Approach with Empirical Tests," Contemporary Accounting Research, John Wiley & Sons, vol. 23(1), pages 31-68, March.
    2. Dean F. Amel & Robin A. Prager, 2016. "Community Bank Performance: How Important are Managers?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 48(2), pages 149-180, March.
    3. Sahbi Missaoui & Nizar Raissi, 2020. "Governance Effect of Board of Directors on Banking Performance: Evidence From Tunisia," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 358-370, April.
    4. Gregory McKee & Albert Kagan, 2018. "Community bank structure an x-efficiency approach," Review of Quantitative Finance and Accounting, Springer, vol. 51(1), pages 19-41, July.

    More about this item

    Keywords

    Bank mergers; Bank size;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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