FDIC Acting Chairman Gruenberg Issues Remarks at 10th Community Banking Research Conference
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I very much appreciate the opportunity to speak at this 10th
I would like to thank the
I would also like to take this opportunity to recognize our friend,
This conference is a valuable vehicle to discuss recent academic research on community banking, and the important policy issues that affect these institutions. Community banks play a vital role by providing credit and other financial services to communities around
Community banking is the prevalent model of banking in
The
In the remainder of my time, I will discuss the nature and importance of community bank lending, structural trends relating to bank branching, and evidence about community bank performance during the pandemic.
Nature of
Research at the
Recognizing the role that community banks play in the
In the initial 2012 study and the follow up 2020 study,/4 we examined the characteristics, trends, strengths, and challenges of community banks relative to non-community banks. Although the majority of institutions are community banks, their representation by assets in the banking industry is about 12 percent as of
Importance of
Let me first elaborate on the relevance of the community-bank business model.
One lens through which the
Research demonstrates that the differences in bank business models have real implications for firms and local economies. There is an extensive literature on this topic, so I will highlight two dimensions on which community banks benefit local economies: lending in times of distress, and equitable access to financial services. First, community banks' disproportionate extensions of credit to small businesses has important implications during downturns when small-business borrowers are credit constrained. In an external 2018 cross-country study, researchers suggest that the relationship-lending model is particularly adept at providing credit to small businesses precisely during downturns, while extending credit at similar levels during credit booms./10 As a result, relationship lending mitigates the negative effect of downturns on firm growth. Importantly, with respect to safety and soundness, the authors find that the effect of relationship lending on firm growth is driven by lending to safer firms rather than through relaxation of underwriting standards. Similarly, a 2021 study of the
Second, community banks play an important role in consumer access to credit. In an external 2010 study, mortgage originations increase and spreads decrease in low and moderate-income communities in the presence of a bank, suggesting that it is not only through small businesses that local banks benefit their local economies. Moreover, the findings of the study suggest that it is primarily the presence of small, community banks, rather than bank presence more broadly, through which lower and moderate-income communities benefit./12 In another study, research demonstrates that minority depository institutions are associated with more credit to minorities and minority homeownership./13
Bank Branching Trends and
Let me now elaborate on the importance of community banks through their physical bank branch presence and what it means for consumer access to financial services.
According to the
A 2019
As of
The number of banking offices, as many of you know, has been in decline since 2009. The number of offices nationwide has declined about 20 percent from its 2009 peak of almost 100,000. Branching services have become less available in some places as a result. There are currently 38 U.S. counties with no banking offices, a number that has remained fairly steady over time. There are 184 counties with just a single banking office, up from 126 such counties in 2009.
Certainly, many customers are using mobile and online banking services and are less reliant on branches. But given the importance of bank branches to some households and small businesses suggested by surveys, the potential economic effects of declines in the number of physical branches, especially in rural or underserved areas, would seem to be an important subject for research.
Evidence from the Paycheck Protection Program
The last topic I will discuss today is the role of community banks during the pandemic as a demonstration of their continued importance to the American financial system. Initially launched in the early weeks of the pandemic, the Paycheck Protection Program, or PPP, offered forgivable loans to support payroll employment. By
Yet, research at the
The research demonstrates that the role of community banks in the Paycheck Protection Program mattered. Increased PPP loans from community banks helped to dampen unemployment at the onset of the pandemic/19 and reduce bankruptcy filings./20 Furthermore, research suggests that a larger presence of community banks in low and moderate-income communities may have reduced some of the racial disparities in PPP outcomes./21
Conclusion
In conclusion, I want to thank the organizers and presenters at the
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Footnotes:
1/ DeYoung, Robert,
2/ https://cdn.advocacy.sba.gov/wp-content/uploads/2020/11/05122043/Small-Business-FAQ-2020.pdf
3/
4/ For example,
5/
6/
7/ Kahn, George A.,
8/
9/
10/ Beck, Thorsten,
11/ Petach, Luke,
12/ Ergungor,
13/ Vatsa, Prithu. "Do Minority
14/
15/ https://www.sba.gov/sites/default/files/2020-08/PPP_Report%20-%202020-08-10-508.pdf
16/ Li, Lei, and
17/ Puri, Manju,
18/ Kutzbach, Mark J. and
19/ Li, Lei and
20/ James, Christopher,
21/ Wang, Jeffrey, and
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Original text here: https://www.fdic.gov/news/speeches/2022/spsep2822.html
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