Featured Product

    Randal Quarles of FED on Trends in Urban and Rural Community Banks

    October 04, 2018

    While speaking at the sixth Annual Community Banking Research and Policy Conference in Missouri, Randal K. Quarles of FED said that the numbers of urban and rural community banks have been declining over the past 20 years, but community banks continue to play an important role in both types of markets and they still account for over 95% of banks operating in the United States. He discussed the differences among community banks in terms of size and markets served (urban versus rural) and emphasized that community banks operating in rural and urban areas tend to face different challenges.

    The number of banks in the United States fell by almost half over the past 20 years—from about 10,700 in 1997 to about 5,600 in 2017. About 97% of the decrease was accounted for by community banks. Although the number of banks in both of these categories has been falling over time, the rate of decline was steeper for rural banks than for urban banks before the financial crisis but has reversed in the post-crisis period. In terms of performance measures, rural community banks consistently outperform urban community banks with regard to return on assets and return on equity. This difference was particularly pronounced during the financial crisis, when profitability fell much more sharply at urban community banks than at rural community banks. The data suggest that, despite facing a more challenging economic environment, rural community banks appear to be holding their own relative to urban community banks. Even if the data indicate that most rural markets are well-served, focus should be on the markets that may not be as well-served and how that is affecting the people who bank, or cannot bank, there. That is why the Community Development function of FED has undertaken a national series of listening sessions to assess the real effects of bank closures on rural communities. 

    For residents in a particular community, the closure has not been much of a problem, as they do most of their routine banking online and even noted that they did not think automated teller machines (ATMs) were necessary because most of the retail businesses in town offer cash back with debit card purchases. Nonetheless, residents spoke positively about the importance of the personal touch a local bank can provide. Residents liked familiar faces at the teller window and loan officers who understand the local economy when making small business loan decisions. Moreover, online banking is not necessarily an opportunity for everyone, depending, for example, on whether the necessary infrastructure is available. In Nicholas County, Kentucky, many residents do not have access to high-speed internet; this lack of access has led most residents to travel outside of the county to conduct their banking needs. This situation is certainly not optimal for anyone, but it presents a particular challenge to the elderly, those without a car, and busy small business owners who do not have time to travel 25 miles each way to make change and deposit checks. 

    The loss of a bank branch also has a ripple effect on a community as a whole. In the village of Brushton, New York, which lost its only bank branch in 2014, small business owners commented that when residents must leave the village to access banking services, they are more likely to shop, eat, and pay for services in other towns, which creates additional hardship for the small businesses of Brushton. Additionally, as the ability of community members to access cash has decreased, credit card use has increased. Small business owners in Brushton say that this growth in credit card usage has significantly increased the cost of doing business. Lastly, one theme that was clear across the country was that the loss of a local bank meant the loss of an important civic institution. Banks do not just cash checks and make loans—they also place ads in small town newspapers, donate to local nonprofits, and sponsor local Little League teams. As towns lose banks and bankers, they also lose important local leaders. He reiterated that FED will continue to explore challenges faced by local communities and looks forward to sharing the collective results of these efforts in a report that should be published in early 2019.

     

    Related Link: Speech

    Keywords: Americas, US, Banking, Community Banks, Urban Banks, Rural Banks, Trends, FED

     

    Related Articles
    News

    EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio

    EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.

    November 19, 2020 WebPage Regulatory News
    News

    ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs

    In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.

    November 19, 2020 WebPage Regulatory News
    News

    IASB Begins First Phase of Post-Implementation Review of IFRS 9

    IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Report Examines Progress in Resolvability of Systemic Institutions

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.

    November 18, 2020 WebPage Regulatory News
    News

    EBA Benchmarks National Insolvency Frameworks Across EU

    EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.

    November 18, 2020 WebPage Regulatory News
    News

    FSB Reports Assess Impact of Pandemic on Financial Stability

    FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.

    November 17, 2020 WebPage Regulatory News
    News

    RBNZ Consults on Implementation of Capital Review Changes

    RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.

    November 17, 2020 WebPage Regulatory News
    News

    IASB Announces Andreas Barckow as the New Chair from July 2021

    The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.

    November 17, 2020 WebPage Regulatory News
    News

    HKMA Consults on Capital Rules for Bank Equity Investments in Funds

    HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.

    November 17, 2020 WebPage Regulatory News
    News

    ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA

    ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).

    November 17, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6153