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Book part
Publication date: 23 November 2011

John Freeman and Pino G. Audia

We distinguish between two forms of local banks that build and maintain legitimacy in different ways: branches and unit banks. Branches gain legitimacy through the parent…

Abstract

We distinguish between two forms of local banks that build and maintain legitimacy in different ways: branches and unit banks. Branches gain legitimacy through the parent organization. Unit banks gain legitimacy through the personal reputation and social connections of the founders. Given the different ways in which legitimacy is built by these organizational forms, we think that the rural or urban nature of the community is likely to affect the founding rates of these two forms differently. Rural communities, in which personal and family relationships play an important role in both social and economic life, provide advantages to well-connected founders of unit banks. In these communities social networks serve as a demand buffer for unit banks, making the founding rate of this organizational form less sensitive to fluctuations in the demand for banking services in rural versus urban communities. In contrast, the founding rate of branches may not be greatly affected by the community context because branches gain legitimacy through a sponsoring organization whose legitimating characteristics are not local. Empirical analyses of foundings of local banks between 1976 and 1988 support these predictions. Supplemental empirical analyses also show no evidence of such buffering effect for unit retail establishments, which are expected to be less central in the social networks of rural communities than unit banks. Our results suggest that community organization channels resources to some kinds of organizations at the expense of others and that organizational research in general and organizational ecology in particular will benefit by paying more attention to community context.

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Communities and Organizations
Type: Book
ISBN: 978-1-78052-284-5

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Article
Publication date: 10 November 2014

Russell D. Kashian and Ran Tao

The purpose of this paper is to examine loan commitments and lending patterns of community banks. The authors also test for shifts in these relationships in the period…

Abstract

Purpose

The purpose of this paper is to examine loan commitments and lending patterns of community banks. The authors also test for shifts in these relationships in the period unwinding the subprime crisis.

Design/methodology/approach

Standard panel fixed-effect models as well as hierarchical (mixed) regression models are estimated given that banks operating in a specific geographic market may vary systematically with differences in firm-level characteristics. Hierarchical (mixed) regression models can control for within-counties and within-banks similarities. The authors also employ pooled estimations with clustered standard errors at the bank level as robustness check.

Findings

The empirical results show that the use of loan commitments is generally associated with moderate increase in profitability and higher insolvency risk. However, during the recent financial crisis, the use of loan commitments becomes safer. The use of loan commitments is more risky for community banks that concentrate more on loans that focus on real estate, while it is safer for community banks with higher equity. In regards to the performance of community banks’ balance sheet loan activities, a more concentrated loan portfolio results in lower return and higher insolvency risks. High loan growth generates higher return and higher risks.

Originality/value

Prior to the 2008 credit meltdown, community banks significantly increased their issuance of off-balance sheet loan commitments. While the ratio of loan commitments to total loans has come down in recent years it continues to exceed the levels reached in the 1990s. This evolution has, however resulted in little research regarding its implications on community bank profitability and risk.

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Journal of Economic Studies, vol. 41 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 4 July 2016

Gregory J McKee and Albert Kagan

The purpose of this paper is to assess product and service arrays of community banks within competitive markets that are impacted by varying sized financial institutions…

Abstract

Purpose

The purpose of this paper is to assess product and service arrays of community banks within competitive markets that are impacted by varying sized financial institutions. A cost efficiency model is used to understand the relationship of product offerings and business cycle response upon bank performance.

Design/methodology/approach

A cost efficiency model is used to understand the relationship of product offerings and business cycle response upon bank performance. Markets comprised of alternate size and type of financial institutions are compared.

Findings

Greater values of X_EFF i when institutions compete are observed in this analysis. Cost efficiency is lowest when community banks are the only institution in the market, and second lowest when credit unions are the only competing institutions. Call report data are analyzed from 1994 to 2013. The number of big banks increases community bank efficiency and efficiency of large banks. Also, the number of community banks does affect big bank cost efficiency. The magnitude of the effect pertaining to the number of community banks upon big bank efficiency is much smaller than that of the number of big banks on community bank efficiency.

Originality/value

This study considers cost efficiency and profitability as measures of institution on the performance of a competing institutional type. The modeling approach uses cost efficiency as a method of observing the performance of financial institutions and an explanation of how firms persist, grow, and respond to changes in technology or regulation. The effects of the presence of each type of financial institution on the performance of another type are compared. Situations in which any number of one or more institutional types is present in a market are considered for analysis purposes.

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International Journal of Bank Marketing, vol. 34 no. 5
Type: Research Article
ISSN: 0265-2323

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Article
Publication date: 15 June 2010

Greg Filbeck, Dianna Preece, Stephen Woessner and Steve Burgess

The purpose of this paper is to examine whether community banks have gained market share at the expense of larger, regional banks in small metropolitan statistical areas…

Abstract

Purpose

The purpose of this paper is to examine whether community banks have gained market share at the expense of larger, regional banks in small metropolitan statistical areas (MSAs). The authors also seek to examine market share gains of community banks relative to each other.

Design/methodology/approach

The empirical research is conducted using deposit and market share data for community and regional banks between 2001 and 2008. The authors employ regression analysis.

Findings

It is found that community banks have gained market share. When regional banks are excluded and the market share gains of community banks relative to each other examined it is found that community banks with lower market shares gain relative to banks with a larger initial share of the deposit market.

Research limitations/implications

Research is conducted using eight metropolitan statistical areas (MSAs) in Wisconsin, Minnesota, and Iowa. Thus, conclusions drawn are based on analysis conducted in one region of the United States.

Practical implications

The paper's findings are in contrast to traditional thinking about size and market share and suggest that community bank managers should focus on each other as well as regional and mega‐bank competitors.

Originality/value

The paper uses market share as a proxy for bank size as a means of explaining the competitive landscape that exists within community banking.

Details

International Journal of Bank Marketing, vol. 28 no. 4
Type: Research Article
ISSN: 0265-2323

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Article
Publication date: 5 March 2018

Gregory Mckee and Albert Kagan

Community banks were affected distinctly by changes in banking regulation in the 1990s when compared with large commercial banks. These banks offer non-traditional finance…

Abstract

Purpose

Community banks were affected distinctly by changes in banking regulation in the 1990s when compared with large commercial banks. These banks offer non-traditional finance items, presumably to compete with these financial institutions. This study aims to examine the importance of accounting for off-balance sheet (OBS) items when estimating the financial performance of community banks.

Design/methodology/approach

This study applies a two-stage analysis pathway that initially calculates X-efficiency scores as part of the overall cost structure and then deploys data envelopment analysis bootstrapping method for a second-stage ordinary least square model.

Findings

Study findings indicate that failure to include OBS items in the X-efficiency calculation for community banks understates the efficiency performance of these banks. Furthermore, results indicate that factors internal and external to the community bank affect X-efficiency. Increases in OBS items are associated with growth in assets and growth in net non-interest income. Therefore, OBS items become an attractive alternative source of income and a mechanism for expanding output with the same volume of inputs. In addition, OBS items allow the largest community banks to deleverage their balance sheet, whereas the smallest community banks still emphasize on traditional lending products and benefit from existing equity. Also, larger banks may be using OBS items as a mechanism to isolate their performance from macroeconomic fluctuations.

Research limitations/implications

Research limitations include a reduced number of community banks as consolidation accelerates partly because of compliance concerns.

Practical implications

The approach used supports a series of community bank managerial approaches that may be adopted by management.

Originality/value

The results of this study show several reasons why community banks may have managerial incentives to include OBS items. As observed by Gilbert et al. (2013), community banks are adjusting their product line so as to operate efficiently. Community banks must provide a product line which provides margin and meets customer needs at a profit to the firm. OBS items allow existing staff to provide funds without additional equity requirements from the balance sheets. The increase in OBS activities may signal the perception that the associated interest income is less risky and less costly than other alternatives, including adopting technologies to diversify traditional loan product offerings. As community banks tend to have lower default rates than their larger counterparts, the most likely explanation is that the OBS interest risk is more attractive than compliance or development of mechanisms to offer a broader suite of traditional loan products.

Details

Studies in Economics and Finance, vol. 35 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 17 August 2010

Sachiko Nakagawa and Rosario Laratta

In recent years, Japanese co‐operative banks have been attracting new interest among academics and the population generally as institutions through which deprived…

Abstract

Purpose

In recent years, Japanese co‐operative banks have been attracting new interest among academics and the population generally as institutions through which deprived communities can be revitalized. They have been shown to be capable of promoting both social co‐operation and economical development through the financing of new social enterprises by investments coming mainly from local residents and existing social organizations. This paper aims to address the central questions of what Japanese co‐operative banks can do to encourage co‐operation among local residents and social enterprises so that they willingly invest their money in the development of their local community.

Design/methodology/approach

In order to explore these questions, two Japanese co‐operative banks are compared by means of a questionnaire survey and semi‐structured interviews with their investors and boards of directors. The main reason for focusing this investigation on these two banks was that despite the similarity of their political, economical and demographical backgrounds, one of them showed a steady growth in local investment while the other failed to produce a similar level of local engagement.

Findings

The findings of the paper clearly demonstrated that when a co‐operative bank acts as “community organizer”, undertaking tasks which are outside its usual sphere of activities as financier, and its board includes members of the social enterprise sector, its positive impact on community development is more effective. However, it also became clear that a vital feature of this kind of endeavour is the utilization of expertise derived from members of the local community.

Originality/value

The paper makes an important contribution to the understanding of co‐operative banks as community organizers. Its originality lies primarily in the fact that it was the first time that this type of research has been conducted on Japanese co‐operative banks.

Details

Social Enterprise Journal, vol. 6 no. 2
Type: Research Article
ISSN: 1750-8614

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Article
Publication date: 5 September 2008

Ram N. Acharya, Albert Kagan and Srinivasa Rao Lingam

The purpose of this paper is to examine the impact of online banking intensity on the financial performance of community banks.

Abstract

Purpose

The purpose of this paper is to examine the impact of online banking intensity on the financial performance of community banks.

Design/methodology/approach

This study estimates online banking intensity and bank performance indices using a combination of primary and secondary data. Online banking intensity is specified as a latent construct and estimated using web feature data collected from bank websites. An empirical profit function of a nonstandard Fourier flexible form is estimated using bank's financial data to derive a theoretically consistent performance measure. The actual impact of online banking on performance is measured by regressing the profit efficiency index against a number of correlates including online banking intensity measure.

Findings

Study results indicate that the increasing use of internet as an additional channel of marketing banking services has significantly improved the financial performance of community banks.

Practical implications

These results show that online banking improves the financial performance and should encourage community banks to adopt new information technologies and offer targeted online services.

Originality/value

This paper is the first of its kind that applies a structural equation modeling framework to develop a comprehensive online banking intensity measure, which accounts for a wide array of products and services offered online by a bank, and utilizes the estimated index in measuring the impact of internet banking intensity on bank performance.

Details

International Journal of Bank Marketing, vol. 26 no. 6
Type: Research Article
ISSN: 0265-2323

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Article
Publication date: 1 December 2003

C.A. Rusinko and D.A. Sesok‐Pizzini

A technological community framework can be used to explain and manage new medical technologies. It describes emergence, commercialization, and standardization of an…

Abstract

A technological community framework can be used to explain and manage new medical technologies. It describes emergence, commercialization, and standardization of an innovation or technology within the context of its whole network (or community) of stakeholders. This framework is used to illustrate the emergence, commercialization, and standardization of a relatively new medical technology – umbilical cord blood (UCB) banking. Umbilical cord blood may prove to be a source of stem cells for bone marrow transplant that is safer, more accessible, and less expensive than current sources of stem cells. The technological community framework can signal potential problems as the technology emerges, and help healthcare delivery systems and providers to effectively assess and manage the technology. The framework can also be applied to other medical technologies and innovations.

Details

Journal of Health Organization and Management, vol. 17 no. 6
Type: Research Article
ISSN: 1477-7266

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Article
Publication date: 9 February 2015

Hilde Patron and William J. Smith

The purpose of this paper is to study the impact of the relaxation of mark-to-market (MTM) standards on community banks’ share prices. Mark-to-market valuation of…

Abstract

Purpose

The purpose of this paper is to study the impact of the relaxation of mark-to-market (MTM) standards on community banks’ share prices. Mark-to-market valuation of securities became increasingly common in the late 1990s and 2000s, as regulators sought to create more transparent and more current depictions of bank financial positions. However, MTM accounting may be sub-optimal in the presence of severe market frictions, such as those experienced during the financial crisis of the late 2000s. To comply with capital requirements associated with MTM accounting, banks of the late 2000s dramatically liquidated portfolios with potentially solvent assets in illiquid markets, taking huge losses. During the financial crisis, mortgage-backed securities held by banks began to plummet in value. Banks were forced to either liquidate these assets even though there were no buyers or dramatically reduce the values of their portfolios based on fire-sale prices. On a cash-flow basis, these securities had value, as many mortgages bundled in these securities continued to be paid on time; however, with markets frozen, market prices did not reflect this value.

Design/methodology/approach

This study shows that, for a sample of 134 community banks, share prices increased after the MTM relaxation, even after accounting for a variety of other economic factors.

Findings

This paper shows that, perhaps counterintuitively, the steps taken by the Financial Accounting Standards Board to relax MTM accounting standards may have acted as a stabilizing factor on the market price of community bank shares by allowing banks to selectively liquidate assets, boosting asset prices until uncertainty was resolved.

Originality/value

This paper examines the impact of recent changes in accounting standards on the perceived risks associated with the banking sector. It specifically focuses attention on the impacts these changes had on community-based banks within the USA.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 1
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 16 November 2020

Russ Kashian, Rashiqa Kamal and Yuhan Xue

Specific types of Hispanic-owned banks (HOBs), including those related to Brazilian, Cuban, Mexican or Puerto Rican heritage, have not be analyzed to date. There are…

Abstract

Purpose

Specific types of Hispanic-owned banks (HOBs), including those related to Brazilian, Cuban, Mexican or Puerto Rican heritage, have not be analyzed to date. There are important differences between the relevant communities, including geographic location, language barriers, population size and the importance of remittances to foreign nations. The analysis here sheds light on these differences.

Design/methodology/approach

HOBs with the Federal Deposit Insurance Corporation (FDIC)-designated minority-owned depository institution (MDI) designation are identified, along with bank ownership heritage. Financial data, a measure of market competition, and demographics of depositors from 2003 to 2017 are utilized in an exploratory analysis comparing banks by HOB type, with random effects regressions for the pre-collapse (2003–2006) and post-collapse (2009–2017) periods.

Findings

Although each of the four types of HOBs serve Hispanic and poor communities, there are substantial differences. For example, Brazilian and Puerto Rican banks on the island held high levels of nonperforming loans (NPLs) post-collapse, with the Brazilian and Mexican banks expanding levels of risky commercial real estate (CRE) lending post-collapse, while the Cuban banks contracted CRE lending. Differences in terms of return on assets (ROAs), the cost of borrowed funds and the tier-1 risk-based capital ratio are also identified.

Social implications

HOBs, like Latinos in the USA, are culturally heterogeneous and likely operate in different ways depending upon the culture and economic circumstances of the communities where they operate.

Originality/value

Although there is substantial research on MDIs, this is the first analysis which treats HOBs as culturally heterogeneous. Further research of this type is warranted.

Details

Managerial Finance, vol. 47 no. 5
Type: Research Article
ISSN: 0307-4358

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