Journal Article

The economic performance of small banks, 1985-2000

Abstract: Several trends in the financial industry over the past decade and a half have potentially threatened the competitiveness of small banks. Among these developments are the numerous mergers that increased the size and scope of large banks and the increased competition from mutual funds and other nonbank financial institutions. This article examines the economic performance of small banks during the 1985-2000 period by focusing on their ability to attract and profitably intermediate insured and uninsured deposits. It finds that the expansion of deposits and assets at small banks, when adjusted to account for the effects of mergers on measured growth, has consistently exceeded the growth at large banks. Moreover, the profitability of small banks has risen to high levels over the period. These indications of strength among small banks as a whole also hold true for subgroups within the small bank sector. Aside from their success in attracting deposits, the key reasons for the generally good performance of small banks in recent years appear to be their ability to earn relatively high rates of return on their loans and an increase in the share of their portfolios devoted to loans.

Keywords: Bank mergers; Bank size;

JEL Classification: G21; G34;

https://doi.org/10.17016/bulletin.2001.87-11

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Federal Reserve Bulletin

Publication Date: 2001-11

Volume: 87

Issue: Nov