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Does uniqueness matter for community banks?

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  • Eduardo G. Minuci

    (North Carolina A&T State University, Willie A. Deese College of Business and Economics)

  • Zachary Rodriguez

    (Union College, Department of Economics)

Abstract

The uniqueness of financial institutions serves as a useful proxy for financial fragility in local financial markets. Our paper investigates how unique community banks are and how market concentration affects the decision of community banks to provide unique financial services relative to their local peers. We find community banks provide relatively homogeneous services compared to their local counterparts. We employ bank and year fixed effects OLS regressions, as well as spatial econometric modelling and find that less concentrated markets encourage banks to seek strategies that maximize their profitability. Given that one of the reasons banks strive for uniqueness is to attract more customers and funding, we investigate how the availability of liquidity in financial markets impacts the relationship between these variables using the expansionary nontraditional monetary policy responses during the Great Recession as an exogenous shock to the availability of liquidity. We show that the profitability benefits of uniqueness are pronounced when liquidity is scarce but associated with lower bank returns when liquidity is relatively abundant.

Suggested Citation

  • Eduardo G. Minuci & Zachary Rodriguez, 2024. "Does uniqueness matter for community banks?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(4), pages 947-977, December.
  • Handle: RePEc:spr:jecfin:v:48:y:2024:i:4:d:10.1007_s12197-024-09684-9
    DOI: 10.1007/s12197-024-09684-9
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    More about this item

    Keywords

    Community banks; Uniqueness; Market concentration; Liquidity; Financial services;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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