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Article
Publication date: 28 October 2005

Srinivas Nippani and Kenneth M. Washer

The enactment of Riegle‐Neal IBBEA in 1994 encouraged bank mergers and acquisitions. Empirical evidence indicates that large banks benefited from IBBEA enactment. However, there…

Abstract

The enactment of Riegle‐Neal IBBEA in 1994 encouraged bank mergers and acquisitions. Empirical evidence indicates that large banks benefited from IBBEA enactment. However, there is little, if any, evidence of the impact of the act on small banks’ profitability relative to large banks. This study examines the impact of IBBEA on the performance of small banks in the period preceding and following IBBEA implementation. Evidence is presented that indicates the return on assets of small banks was significantly less than that of larger banks in the post‐IBBEA period. This is contrary to the results of the pre‐IBBEA period when small banks’ profitability was competitive with and in some cases even better than large banks’ profitability. It is concluded that the enactment of IBBEA has placed small banks at a competitive disadvantage which could eventually lead to their demise.

Details

American Journal of Business, vol. 20 no. 2
Type: Research Article
ISSN: 1935-5181

Keywords

Article
Publication date: 6 May 2014

Jill M. Hendrickson, Mark W. Nichols and Daniel R. Fairchild

– The purpose of this paper is to examine the impact of bank branch location on the likelihood of bank failure during the most recent financial crisis.

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Abstract

Purpose

The purpose of this paper is to examine the impact of bank branch location on the likelihood of bank failure during the most recent financial crisis.

Design/methodology/approach

This paper estimates the probit regression to identify the causes of bank failures and attempts to determine the role of branch location in bank performance.

Findings

Using data from failed and surviving banks in Georgia and Florida, this paper finds that diversifying the balance sheet and operating in more competitive markets reduced failure rates, but branching intensity, measured by number of branches and distance of branches from the home office did not significantly reduce the probability of failure. This suggests that, at least in today ' s market, it is not important to bank stability to have a branching network a significant distance from the home office.

Originality/value

This paper carefully considers the role of branch location in the likelihood of bank failure during financial distress. As such, it contributes to the historical policy debate regarding regulation prohibiting or minimizing banks ' ability to branch. It also contributes to our understanding of how banks structure their branching networks in the contemporary banking environment.

Details

Journal of Financial Economic Policy, vol. 6 no. 2
Type: Research Article
ISSN: 1757-6385

Keywords

Book part
Publication date: 1 January 2005

James A. Wilcox

Deregulation and other factors permit and encourage financial institutions to become more integrated, both within their own (financial) industries, such as banking and insurance…

Abstract

Deregulation and other factors permit and encourage financial institutions to become more integrated, both within their own (financial) industries, such as banking and insurance, and across these industries. Financial regulators have responded with like integration. As financial institutions increasingly compete with firms from other industries and areas, financial regulators similarly compete more across borders. The resulting competition in financial regulation enhances innovation, choice, and efficiency. The advent of home-run regulation, which in general allows financial institutions to adhere only to the financial regulations of their home area and is spreading across the US and Europe, may allow numerous regulatory regimes within a given market.

Details

Research in Finance
Type: Book
ISBN: 978-0-76231-277-1

Article
Publication date: 1 November 1997

James R. Barth, Daniel E. Nolle and Tara N. Rice

The purpose of this paper is to compare and contrast the structure, regulation, and performance of banks in the EU and G‐10 countries. This enables one to identify any significant…

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Abstract

The purpose of this paper is to compare and contrast the structure, regulation, and performance of banks in the EU and G‐10 countries. This enables one to identify any significant differences in the structure of banking in the nineteen separate countries comprising these two groups. The regulatory, supervisory, and deposit‐insurance environment in which banks operate in each of these countries is also compared and contrasted. This enables one to identify any significant differences in the regulatory environment that may help explain the structure of banking in the various countries. Beyond this, the effect of the overall structural and regulatory environment on individual bank performance is investigated in order to evaluate the appropriateness of existing regulations in individual countries and any proposals for reforming them. Hence, an exploratory empirical analysis based upon a sample of banks in the different countries is conducted to assess the effect of the different “regulatory regimes” on the performance of individual banks, controlling for various bank‐specific and country‐specific factors that may also affect bank performance. In this way, the paper attempts to contribute to an assessment of the appropriate balance between market and regulatory discipline to ensure that banks have sufficient opportunities to compete prudently and profitability in a competitive and global financial marketplace. In the process of conducting such an assessment, the paper necessarily provides information as to whether the U.S. is “out‐of‐step” with banking developments in other industrial countries.

Details

Managerial Finance, vol. 23 no. 11
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 11 July 2023

Ca Nguyen, Alejandro Pacheco and Randall Stone

This paper investigates the significant increase in S corporation banks converting to C corporations following the 2017 Tax Cuts and Jobs Act (TCJA) and the shift in motivations…

Abstract

Purpose

This paper investigates the significant increase in S corporation banks converting to C corporations following the 2017 Tax Cuts and Jobs Act (TCJA) and the shift in motivations behind these conversions.

Design/methodology/approach

The paper uses bank-level panel data from Federal Deposit Insurance Corporation (FDIC) Call Reports to analyze the determinants of S bank conversions after the TCJA, comparing post-TCJA conversion trends with pre-TCJA trends utilizing an ordinary least squares (OLS) and logistics model.

Findings

The study finds that post-TCJA conversions are primarily driven by financially stable banks seeking improved tax conditions and relaxed shareholder restrictions as C corporations. This contrasts with pre-TCJA conversions, which were predominantly driven by financially distressed S corporation banks seeking new equity capital to maintain solvency.

Research limitations/implications

The findings necessitate a comprehensive reconsideration of the Subchapter S status' sustained relevance for smaller institutions, especially in light of the comparative benefits now offered by the C corporation status post-TCJA. The results underscore the importance of ongoing academic investigation to deepen the understanding of the evolving fiscal landscape's effects on community banks, thereby contributing to the knowledge of the resilience and health of the US economy.

Practical implications

This research nudges policymakers and regulators to contemplate the ongoing relevance and advantages of the S corporation status. Given the substantial benefits conferred by the C corporation status in the post-TCJA environment, this study suggests that retaining the S corporation status may not offer the same appeal for smaller community banks as it once did.

Originality/value

This paper contributes to the broader understanding of the impact of tax policy on businesses' organizational choices, particularly in the banking industry and emphasizes the need for a comprehensive review of the S corporation status to assess its ongoing applicability in fostering small and community-focused financial institutions in light of the evolved corporate tax landscape.

Details

Managerial Finance, vol. 49 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 15 August 2022

Habib Hussain Khan

The purpose of this study is to explore the possible impact of banking market structure on the idiosyncratic risk of financially dependent firms in China.

Abstract

Purpose

The purpose of this study is to explore the possible impact of banking market structure on the idiosyncratic risk of financially dependent firms in China.

Design/methodology/approach

The study analyzes firm-level data for China from 1999 to 2018 using a two-step dynamic panel system generalized method of moments (GMM).

Findings

The findings imply that bank competition lowers corporate risk, particularly among firms that are highly dependent on external funding for their financing needs. The findings are consistent with alternative indicators of competition, corporate risk, and financial dependence. The analysis of the transmission mechanism – the channel through which competition affects corporate risk – reveals that bank competition reduces corporate risk by curtailing financing constraints faced by firms.

Research limitations/implications

The competition-enhancing policy should consider the optimum level of bank competition for financial and economic stability. Further research is necessary to define the “desirable” or “optimum” level of bank competition.

Practical implications

In China, where the banking sector is still highly concentrated, the findings of this study call for policies aimed at encouraging healthy competition among banks. Nevertheless, such a policy must also consider the extent of bank competition that is optimal for the economy, particularly for financial and economic stability.

Originality/value

The paper provides the first evidence of the possible linkage between bank competition and corporate risk in China.

Details

International Journal of Emerging Markets, vol. 19 no. 4
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 20 September 2019

Robert Neil Killins, David W. Johnk and Peter V. Egly

The purpose of this paper is to explore the impact of financial regulation policy uncertainty (FRPU) on bank profit and risk.

Abstract

Purpose

The purpose of this paper is to explore the impact of financial regulation policy uncertainty (FRPU) on bank profit and risk.

Design/methodology/approach

This study applies dynamic panel techniques and uses the Baker et al. (2016) FRPU index and macroeconomic variables to assess FRPU’s impact on bank profit and risk using Federal Deposit Insurance Corporation call reports from Q1 2000 to Q4 2016 for over 4,760 commercial banks.

Findings

The effect of FRPU on profitability (Return on Assets [ROA] and Return on Equity [ROE]) and risk (standard deviation of ROA and ROE) produces complex results. FRPU negatively (positively) impacts profits for small and large banks (money center banks). There is a positive impact on FRPU for small and medium-sized banks, with no impact reported for the large and money center banks.

Practical implications

Findings lead to several implications for financial services regulators, investors and executives as summarized in the conclusion. It is essential to ensure that clear communication channels are open especially to small and medium-sized banks for proper strategic planning, given their greater sensitivity to regulatory uncertainty.

Originality/value

This paper contributes to the literature as follows. First, it explores the impact of FRPU on bank profits and risk using a novel index introduced by Baker et al. (2016). This news-based continuous measure presents a bank profit modeling approach that differs from traditional event study methodology. Second, a large sample of US commercial banks is used which represents an important departure from banking regulation studies.

Details

Studies in Economics and Finance, vol. 37 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

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