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Dwarf banks

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  • Chernykh, Lucy

Abstract

This study examines the business model and the viability of very small commercial banks in emerging market context. Using a unique sample of 141 Russian banks with less than a $10 million in assets, I trace performance, survival, recapitalization and growth patterns of these dwarf banks in response to the sharp increase in the minimum capital requirements. I find that dwarf banks are, on average, low-risk financial intermediaries that perform simple operations and have significantly higher survival rates in local markets with poor economic and banking services outreach characteristics. I also find that the average dwarf banks withstand the regulatory capital shock surprisingly well by securing fresh capital injection followed by a twofold asset size increase. The results of this study contribute to the literature on the relationship between the small bank business model, local banking markets characteristics and long-term viability. They also provide new evidence on the expected and unexpected outcomes of the “too small to survive” regulatory intervention into the banking market size structures.

Suggested Citation

  • Chernykh, Lucy, 2014. "Dwarf banks," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 31-40.
  • Handle: RePEc:eee:jbfina:v:38:y:2014:i:c:p:31-40
    DOI: 10.1016/j.jbankfin.2013.09.014
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    References listed on IDEAS

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