The first large-scale study by the federal deposit insurer on the state of the nation’s community banks since 2012 was released Wednesday and covers the period from year-end 2011 through year-end 2019.
The Federal Deposit Insurance Corp.’s (FDIC) 2012 study looked at the industry’s performance coming out of the financial crisis. The new study is updated to also address the impact of regulation and technology, the agency said. Though the period covered by the new study ended in 2019, the report also provides observations about how community banks have fared during the COVID-19 pandemic (in which the agency said the institutions continued to turn in a strong performance).
The FDIC, announcing the study, summarized key findings as follows:
- Structural Changes – Voluntary mergers between unaffiliated institutions were the primary cause of the decline in the number of insured depository institutions between 2012 and 2019: the number of community banks fell from 6,802 to 4,750 and the number of non-community banks dropped from 555 to 427. Community banks acquired more than two-thirds of the community banks that closed during the study period.
- Regulation – The scope of regulatory change from 2008 through 2019 underscores that regulatory burden can be challenging for small banks with limited compliance resources. Banks’ regulatory compliance function is likely a factor contributing to scale economies, thereby indirectly affecting some banks’ decisions to enter or exit the industry and the distribution of residential mortgage holdings across banks of different sizes.
- Community Bank Lending – Though community banks tend to be relatively small, their commercial real estate (CRE), small business and agriculture lending far exceed their relative size within the overall banking industry. While community banks account for just 15% of the banking industry’s total loans, they hold 30% of all CRE loans, 36% of small business loans, and 70% of agricultural loans.