Regional economic conditions and community bank performance
Community banks, by virtue of their size and emphasis on so-called relationship banking, typically have limited geographic scope in their activities. This would seem to imply that their financial performance would be tied closely to the financial condition of their customers and, thus, to the economic conditions in regional banking markets. Contrary to this expectation, the empirical evidence on the relationship between average community bank performance and regional economic conditions is at best mixed. Moreover, studies tend to find that information on regional economic conditions is of limited help in predicting the performance of individual banks. ; In this Economic Letter, we argue that part of the explanation for this puzzle lies in the fact that looking at the average response of bank performance tends to mask the wide range of responses of individual banks' performances to regional economic shocks; we find evidence that individual bank responses run from significantly positive to significantly negative. At the same time, our analysis suggests that bank-specific factors are important drivers of the variation in the performance of community banks.
Volume (Year): (2007)
Issue (Month): jul27 ()
|Contact details of provider:|| Postal: |
Phone: (415) 974-2000
Fax: (415) 974-3333
Web page: http://www.frbsf.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frederick Furlong & John Krainer, 2007. "Regional economic conditions and the variability of rates of return in commercial banking," Working Paper Series 2007-21, Federal Reserve Bank of San Francisco.
- William Emmons & R. Gilbert & Timothy Yeager, 2004. "Reducing the Risk at Small Community Banks: Is it Size or Geographic Diversification that Matters?," Journal of Financial Services Research, Springer, vol. 25(2), pages 259-281, April.
- Andrew P. Meyer & Timothy J. Yeager, 2001. "Are small rural banks vulnerable to local economic downturns?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 25-38.
When requesting a correction, please mention this item's handle: RePEc:fip:fedfel:y:2007:i:jul27:n:2007-22. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.