Tài liệu The Role of Community Banks in the U.S. Economy pdf

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ECONOMIC REVIEW
•
SECOND QUARTER 2003 19
These measures of community banks’ importance are down con-
siderably from 1980. Since that time, community banks’ share of
banking offices has fallen by 18 percentage points and their share of
bank deposits, loans, and assets by about 15 percentage points. The
decline in community banks’ market share has been continuous.
However, the pace of decline moderated somewhat in the 1990s, with
community banks losing only half as much market share in that period
as in the previous decade.
Community banks have not been the only group of banks to lose
market share over the last 20 years. As shown in Chart 1, the deposit
share of organizations between $1 billion and $10 billion in size, often
referred to as “regional” banking organizations, has declined by roughly
the same amount. The big gainers during this period have been the
“megabanks,” those over $100 billion in size. These organizations held
only a tenth of total deposits in 1980 but now account for two-fifths.
Table 2
SHARE OF COMMUNITY BANKS IN TOTAL U.S.
BANKING ACTIVITY
(End of year)
1980 1990 2002
Banks
Number 12,366 10,180 6,936
Percent of total 85.7 83.3 88.5
Banking offices
Number 23,947 22,171 23,565
Percent of total 51.6 39.3 34.1
Assets
Amount (billions of 2002 $) 1,024 907 923
Percent of total 30.6 21.7 14.8
Deposits
Amount (billions of 2002 $) 895 798 762
Percent of total 34.5 24.7 19.3
Loans
Amount (billions of 2002 $) 535 502 591
Percent of total 30.0 19.3 15.5
Note: Data are for end of year except banking offices, which are for middle of year. Assets, loans,
and deposits are for domestic offices only.
Source: Reports of Condition and Income and Summary of Deposits
20 FEDERAL RESERVE BANK OF KANSAS CITY
The reduction in community banks’ role in the banking system has
been due mainly to absorption by larger banking organizations, and not
to below-average growth at those community banks that remained
independent. As discussed in more detail in the next section, deposits
and assets have actually tended to grow somewhat faster at community
banks than at larger banks after adjusting for mergers, suggesting that
the community banks that have survived consolidation have had little
difficulty competing for customers.
Importance of community banks in key sectors
While community banks account for a relatively small share of total
banking activity in the United States as a whole, they remain highly
important in some types of communities and in some parts of the
country. Community banks are especially important in rural communi-
ties, accounting for 58 percent of all banking offices in such
communities and 49 percent of all deposits (Table 3). While community
Chart 1
DEPOSIT DISTRIBUTION BY SIZE OF BANKING
ORGANIZATION
(End of year)
Source: Reports of Condition and Income
0
10
20
30
40
50
0
10
20
30
40
50
1980
2002
Community banks
(<$1B)
Regional
($1B to $10B)
Super-regional
($10B to $100B)
Megabanks
(>$100B)
Size of organization (2002 dollars)
Percent of total deposits
ECONOMIC REVIEW
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SECOND QUARTER 2003 21
Table 3
IMPORTANCE OF COMMUNITY BANKS BY TYPE
OF MARKET
(June 2002)
Rural 11,787 57.8 325.9 49.3
Urban 11,778 24.2 412.1 13.5
< 1M 5,222 30.9 159.7 23.2
1M to 5M 3,887 23.2 136.2 13.9
> 5M 2,669 17.8 116.1 8.4
All U.S. 23,565 34.1 737.9 19.8
Source: Summary of Deposits
Percent of
deposits at all
bank br
anches
Deposits at
community
bank branches
(billions of $)
Percent of all
bank br
anches
Number
of community
bank br
anches
Type of
community
Table 4
IMPORTANCE OF COMMUNITY BANKS BY FEDERAL
RESERVE DISTRICT
(June 2002)
Boston 451 22.5 14.5 9.3
New York 744 13.1 29.0 5.0
Philadelphia 848 26.4 26.9 14.1
Cleveland 1,254 26.8 34.8 15.4
Richmond 1,923 25.4 55.0 16.4
Atlanta 3,357 32.4 106.6 23.1
Chicago 3,642 39.3 126.4 26.2
St. Louis 2,493 50.0 76.6 41.2
Minneapolis 1,951 65.3 54.8 44.7
Kansas City 2,968 58.3 84.0 45.2
Dallas 2,049 46.5 64.9 28.1
San Francisco 1,885 21.3 64.4 11.5
All U.S. 23,565 34.1 737.9 19.8
Source: Summary of Deposits
Percent of
deposits at all
bank br
anches
Deposits at
community
bank branches
(billions of $)
Percent of all
bank branches
Number
of community
bank br
anchesDistrict
22 FEDERAL RESERVE BANK OF KANSAS CITY
Table 5
IMPORTANCE OF COMMUNITY BANKS BY STATE
(June 2002)
Kansas 904 75.3 22.3 64.4
Iowa 922 75.4 27.2 64.3
North Dakota 275 77.7 6.5 59.4
Arkansas 646 59.9 18.4 55.1
Oklahoma 637 65.3 20.6 54.6
South Dakota 254 68.1 7.4 53.4
Montana 191 60.3 5.3 52.1
Nebraska 495 66.3 12.5 47.7
Wyoming 85 47.8 3.4 44.1
Kentucky 709 46.6 20.9 41.6
New Mexico 164 41.1 5.6 40.2
Wisconsin 854 52.2 26.1 38.2
Missouri 971 51.0 29.5 38.0
Minnesota 923 62.7 27.9 36.9
Tennessee 768 41.9 24.2 32.9
Mississippi 374 37.1 9.8 32.0
Louisiana 604 46.3 13.9 30.1
West Virginia 213 37.8 6.4 30.0
Vermont 86 39.4 2.1 28.8
Illinois 1543 45.7 63.7 27.7
Georgia 773 35.5 28.5 27.4
Texas 1793 45.3 58.7 27.0
Alabama 489 36.1 14.5 26.9
Maine 93 32.9 2.3 26.9
Colorado 402 37.0 12.5 26.5
Indiana 553 30.0 15.4 23.2
Idaho 88 24.1 2.2 22.8
Virginia 655 29.4 19.8 21.1
Alaska 24 20.0 1.0 21.0
Pennsylvania 916 29.1 28.6 20.9
Washington 369 29.3 9.8 20.3
Utah 121 24.5 3.5 20.0
South Carolina 264 25.1 7.4 19.8
Oregon 176 23.5 4.8 18.4
Florida 899 23.1 30.9 15.6
Michigan 568 22.0 17.3 14.4
Maryland 264 19.6 7.6 13.2
Ohio 738 23.0 20.0 12.6
Nevada 61 16.1 3.0 11.9
North Carolina 521 23.0 13.4 11.6
California 871 19.9 36.2 9.9
New Jersey 318 14.8 11.6 8.7
Connecticut 71 16.5 2.3 8.7
New Hampshire 61 28.6 1.7 8.2
Rhode Island 16 10.3 0.8 6.6
Massachusetts 147 16.8 5.9 6.5
Dist. of Columbia 22 13.9 0.7 6.3
Hawaii 29 14.1 0.8 5.3
Arizona 111 13.1 2.3 5.2
New York 446 13.0 17.8 4.1
Delaware 28 14.7 0.8 1.2
All U.S. 23,565 34.1 737.9 19.8
Source: Summary of Deposits
Percent of
deposits at all
bank br
anches
Deposits at
community
bank branches
(billions of $)
Percent of all
bank br
anches
Number
of community
bank br
anchesState
ECONOMIC REVIEW
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SECOND QUARTER 2003 23
banks account for a much smaller percent of urban banking activity, they
do play an important role in smaller metro areas. In metro areas with less
than one million people, for example, community banks operate 31
percent of all banking offices and control 23 percent of all deposits.
Community banks are also much more important in some Federal
Reserve districts than others. While community banks account for about
a third of all banking offices in the nation as a whole, they account for
half or more of all banking offices in three Federal Reserve districts—St.
Louis, Minneapolis, and Kansas City (Table 4). In each of these districts,
community banks also control more than 40 percent of deposits.
Another indication of the importance of community banks in the
Kansas City district is that four of its seven states are among the top ten
in the nation when ranked by community bank deposit share (Table 5).
These include top-ranked Kansas (64 percent), fifth-ranked Oklahoma
(55 percent), eighth-ranked Nebraska (48 percent), and ninth-ranked
Wyoming (44 percent).
One reason community banks are more important in the St. Louis,
Minneapolis, and Kansas City Federal Reserve districts is that a higher
percent of the population in these districts live in rural areas and small
urban areas than in the nation as a whole. In the Kansas City district,
for example, 33 percent of the population live in rural areas and another
32 percent in metro areas with less than a million people. In the entire
United States, by contrast, only 19 percent of the population live in
rural areas and only 23 percent live in metro areas under one million.
Table 6
DEPOSIT SHARE OF COMMUNITY BANKS, TENTH
DISTRICT VS. U.S.
(June 2002)
Type of community Tenth District United States
Rural 72.7 49.3
Urban 28.9 13.5
<500K 41.7 26.5
500K to 1M 28.4 17.3
1M to 5M 25.2 13.9
> 5M N/A 8.4
All 45.2 19.8
Source: Summary of Deposits
24 FEDERAL RESERVE BANK OF KANSAS CITY
Demographics are not the whole explanation for the greater impor-
tance of community banks in the St. Louis, Minneapolis, and Kansas
City Federal Reserve districts. Compared to the nation, for example,
Table 6 shows that community banks in the Kansas City district account
for a much higher share of deposits both in rural areas (23 percentage
points) and each size category of urban area (11 to 15 percentage points).
The fact that such differences in the importance of community banks
remain even after controlling for demographics may reflect that intrastate
branching was severely restricted in the Midwest until relatively recently,
artificially limiting the size of banks in that part of the country.
Importance of community banks as financial service providers
Besides providing a substantial share of banking services in rural
areas, smaller cities, and the middle of the country, community banks
perform highly important roles as providers of relationship-based and
information-intensive banking services. These services are consumed
mainly by smaller customers such as small businesses, family farmers,
and depositors of low to moderate wealth.
Small business lending. Community banks’ role as small business
lenders is important because small businesses account for a significant
share of total output and employment growth. While there is no single
definition of a small business, the most common one is a firm with
fewer than 500 employees. According to this definition, small busi-
nesses account for just over half of private sector output and
employment and provide two-thirds to three-quarters of net job
growth. In fact, half of net job growth in the country is provided by
even smaller businesses—those with less than 20 employees (U.S. Small
Business Administration 1998, 2002).
Community banks have some important advantages over larger
banks in making small business loans. Loan officers at small banks can
take into account a wide variety of factors in reviewing applications for
small business loans, including the character of the borrower and special
features of the local market. Loan officers at large, geographically dis-
persed banking organizations are usually not given so much autonomy
in making small business loans because it is not feasible for the top
managers of such organizations to review every small loan decision.
ECONOMIC REVIEW
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SECOND QUARTER 2003 25
Instead, these organizations often prefer to rely on credit scoring
models—statistical models that predict a borrower’s probability of
repayment based on such objective characteristics as personal wealth
and past credit history (Cole and others, Berger and others 2002).
While such a “cookie-cutter” approach to lending may improve the
flow of credit to some small businesses—those whose owners have sub-
stantial personal assets and long credit histories—it may also result in
other creditworthy small businesses being turned down for credit.
Another reason community banks may be better suited to making
small business loans is that such loans often require a close, long-term
relationship with the borrower. Lending to a small business with little
credit history or collateral may require the bank to carefully monitor the
borrower over the course of the loan. To cover the fixed cost of investi-
gating a loan applicant and learning his business, the bank may also
need to maintain a long-term relationship with the firm. Large banking
organizations may be reluctant to engage in such relationship-based
lending because they have a comparative advantage in more impersonal,
transactions-based services and because it is inefficient to provide both
kinds of services (Berger and Udell). Consistent with this view,
researchers have found that large banks are more likely than small banks
to deal with small business customers over a long distance, more likely
Table 7
SHARE OF COMMUNITY BANKS IN BUSINESS LENDING
(June 2002)
Commercial and industrial 99.3 12.8
≤ $1M 78.5 32.5
≤ $100K 32.4 35.9
$100K to $1M 46.0 30.5
> $1M 20.8 3.9
Nonresidential real estate 145.6 27.7
≤ $1M 98.1 41.9
≤ $ 100K 19.1 61.4
$100K to $1M 79.0 38.9
> $1M 47.5 16.3
Source: Reports of Condition and Income
Loans by community banks as
per
cent of loans by all banks
Loans by community
banks (billions of $)
Type of loan
26 FEDERAL RESERVE BANK OF KANSAS CITY
to communicate with customers by mail or phone rather than face-to-
face meetings, and less likely to maintain an exclusive, long-term
relationship with the borrower (Berger and others 2002).
Data on small business finances confirm the special role played by
community banks in lending to small businesses. According to one
recent estimate, commercial banks of all sizes supplied 37 percent of
small business debt in 1993, where small businesses are defined as non-
financial, non-real estate firms with fewer than 500 employees (Berger
and Udell). This estimate did not break down small business lending by
size of bank. However, other data on bank lending by size of loan make
clear that community banks account for a disproportionate share of
total lending by banks to small businesses (Table 7). Researchers typi-
cally treat commercial and industrial (C&I) loans over $1 million in
size as loans to large businesses and loans of $1 million or less as loans
to small businesses. According to this definition, community banks
accounted for only 4 percent of large business loans in June 2002 but
33 percent of small business loans—much larger than their share of
deposits (19 percent) or their share of assets (15 percent). Furthermore,
for very small business loans, those of $100,000 or less, the share of
community banks was even higher, 36 percent.
Community banks are also important providers of another form of
small business credit—bank loans backed by nonresidential real estate.
In June 2002, community banks accounted for 42 percent of all non-
residential real estate loans of $1 million or less held by banks and 61
percent of all loans of $100,000 or less held by banks.
Two other forms of evidence support the view that community
banks have an inherent advantage over larger banks in making small
business loans. First, some researchers have found that small banks
earn higher rates of return on their small business loans than large
banks, even after adjusting for loss rates (Carter and others). Second,
although far from unanimous, studies of the impact of banks mergers
on small business lending have generally found that small business
lending declines when the acquiring banking organization is large
(Berger and Udell).
3
Farm lending. Given the importance of community banks in rural
areas, it comes as no surprise that these banks are also important farm
lenders. While farming is a much less important component of the
ECONOMIC REVIEW
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SECOND QUARTER 2003 27
national economy than small business activity, many rural communities
are still heavily dependent on farming. Indeed, the Department of Agri-
culture still classifies one in four rural counties as farming-dependent,
defining such counties as those in which farming contributes 20 percent
or more of labor and proprietor income (Cook and Mizer).
4
Commercial banks as a group held 39 percent of all farm business
debt at the end of 2002—a third of all farm real estate loans and a half
of all farm operating loans (U.S. Department of Agriculture). As
shown in Table 8, community banks provided the majority of such
bank loans—65 percent of all farm real estate loans held by banks and
61 percent of all farm operating loans held by banks. The share of
community banks is especially high for small farm loans, exceeding 80
percent for farm real estate loans and farm operating loans of $100,000
or less. Like small business loans, small farm loans require substantial
information gathering and monitoring by the lender, helping explain
why community banks account for an even larger portion of these
loans than of all farm loans.
Retail deposit services. Relationship-based services are not only
important to small businesses but also to many depositors. Some ana-
lysts argue that community banks are more interested than large
banking organizations in providing personal service to depositors of low
to moderate wealth. One possible reason for this difference in focus is
that community banks depend more heavily on retail deposits for their
Table 8
SHARE OF COMMUNITY BANKS IN FARM LENDING
(June 2002)
Farm real estate 23.9 64.6
≤ $100K 11.0 82.6
$100M to $500K 9.6 64.9
> $500K 3.3 37.2
Farm operating 28.4 60.6
≤ $100K 16.0 82.2
$100K to $500K 8.7 64.4
> $500K 3.7 26.4
Source: Reports of Condition and Income
Loans by community banks as
percent of loans by all banks
Loans by community
banks (billions of $)Type of loan
28 FEDERAL RESERVE BANK OF KANSAS CITY
funds than large banks. Another reason is that large banks often prefer
specializing in impersonal, transactions-based deposit services, where
they tend to enjoy a comparative advantage over community banks due
to their size and access to technology.
The limited data available suggest that community banks do focus
more on small depositors than larger banks, although the difference is
not as great as for small business and farm borrowers. At the end of
2002, community banks held 24 percent of deposits in accounts of
$100,000 or less, but only 15 percent of deposits in accounts over that
amount (Table 9). Community banks also tend to charge lower fees for
retail banking services than larger banks, which some analysts interpret
as a sign that community banks are more interested in attracting and
retaining small depositors (Hannan). In 2001, for example, the average
monthly low balance fee on NOW accounts was two to three dollars
lower at depository institutions under $1 billion in size than at institu-
tions over $1 billion in size, and the fee for stop-payments orders was
two to five dollars lower (Table 10). Consistent with the view that large
banks do not have as great a need to attract retail deposits, recent studies
have found that large banks serving multiple markets tend to pay lower
deposit rates than single-market banks serving the same markets
(Hannan and Prager).
Table 9
DEPOSIT SHARE OF COMMUNITY BANKS BY SIZE
OF ACCOUNT
(December 2002)
All domestic deposits 762 19.3
Accounts ≤ $100K 477 23.5
Accounts > $100K 285 14.8
Source: Reports of Condition and Income
Deposits at community banks as
per
cent of deposits at all banks
Deposits at community
banks (billions of $)S
ize of deposit account