FDII 

FEDERAL DEPOSIT INSURANCE CORPORATION 

FDIC Advisory Committee of 

State Regulators 

October 14, 2020 

Community Bank Consolidation 
 

 

Banking Industry Consolidation Is a Long-Term Trend 

Number of Charters 

Noncommunity Banks 20,000 Community Banks 

18,000 

16,000 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

1984 1989 1994 1999 2004 2009 2014 2019 

Source: FDIC. 

0 
 

 

 

 

 

Community Banks Were Less Likely Than Noncommunity Banks 

to Close Between 2012 and 2019 

Closings by Type of Closure, as Percentages of Institutions Reporting at Year-End 2011 

Community Banks Noncommunity Banks 

0% -2% Failed -2% 

-10% -4% Merged, Within Same -16% 

Holding Company -20% -23% 

Merged, Not Within -14% 

-30% -1% Same Holding 

Company -5% -40% Community Bank 

All Other Voluntarily -50% Attrition Rate: Noncommunity Bank Closed 30% Attrition Rate: -60% 

36% 

-70% 

-80% 

-90% 

-100% 

Source: FDIC. 

Note: Summation of the percentages by type of closure may not equal the attrition rate due to rounding. 
 

Community Banks Are Overwhelmingly Acquired by Other Community Banks 

Percent of Closed Community Banks Acquired by Other Community Banks Between 2012 and 2019, 

by Closed Bank Assets 

89% 

65% 

32% 

18% 

0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

90% 

100% 

All Community Banks: 67% 

<$100M $100M-$500M $500M-$1B $1B-$10B 

Assets of Closed Community Bank 

Source: FDIC. 
 

, 

I 

I 

' 

,, 

I 

.... ____ _ 

,, 

, \ 

, \ , \ ....... ... .... 

' ' ' ' 

Community Banks are Exiting Banking Faster than Before 

Acquired by Unaffiliated Bank or Self-Liquidating 

Percent of Existing Institutions 

12 

10 

8 

6 

4 

2 

0 

Percent Exiting: 

Community banks 

Noncommunity banks 

Source: FDIC. 

Note: Percent of banks existing at yearend that were acquired by an unaffiliated institution or 

self-liquidated within one year. 
 

 

-

New Chartering Remains Near Historic Lows 

Annual Number of New Charters and New Chartering Rate as a 

Percentage of Charters Reporting at Previous Year-End, 2000 to 2019 

Number Rate 

0.0% 

0.5% 

1.0% 

1.5% 

2.0% 

2.5% 

0 

50 

100 

150 

200 

250 

New Charters 

New Chartering Rate 

2000 2003 2006 2009 2012 2015 2018 

Source: FDIC. 
 

 

 

II 

35 

The Cost of Chartering a Small Bank Has Increased 

Mean Initial Equity of De Novo Small Banks 

$ Millions 

30 

25 

20 

15 

10 

5 

0 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 

Source: FDIC. 

Notes: Equity capital reported as of banks' first Call Report filing. Analysis limited to de novo banks with initially 

reported equity capital less than $100 million. 
CJ 

Declines in the Number of Banking Offices Have Been Widespread 

Percentage Change in Banking Offices by County, 2012 to 2020 
 

 

 

 

 

 

The Number of Counties With Only One Bank Office, or No Bank Offices, Is Increasing 

2020 2012 

Number of Counties with One Bank Office: 134 107 

Community Bank 94 76 

Noncommunity Bank 40 31 

Number of Counties with No Bank Offices: 34 33 

Of the 34 counties without bank offices, 26 also did not have any bank offices in 2012. 

Six of them had one office in 2012, and one had two offices in 2012. 

Of the 134 counties with only one bank office, 95 also had only one bank office in 2012. 

Four of them did not have any bank offices in 2012, 28 had two bank offices in 2012, 

and seven had either three, four, or five offices in 2012. 
FDII 

FEDERAL DEPOSIT INSURANCE CORPORATION 

Shared Destinies? 

Small Banks and Small Business 

Consolidation 

A Working Paper by: 

Claire Brennecke (CFPB) 

Stefan Jacewitz (FDIC) 

Jonathan Pogach (FDIC) 
 

Disclaimer 

Views and opinions expressed in this presentation 

reflect those of the authors and do not necessarily 

reflect those of the FDIC, CFPB, or the United 

States. 
 

00 2005 2010 

YEAR 

2015 

--- S1nall Firm Share --- SmaH Bank Shara 

2020 

Decline in Small Banks and Small Firms 

Source: Quarterly Workforce Indicators (Firm Shares). Summary of Deposits (Deposit Shares). 

Small Firms <250 employees 

Small Banks< $1 bn assets 
 

 

 

Banking Consolidation 

• Consolidation of banking system, driven by: 

• Regulatory changes (Riegle Neal 1994, Gramm Leach Bliley 1999, Dodd 

Frank 2010) 

• Technological changes (ATMs, credit scoring) 

• Small banks have comparative advantage in lending to small 

businesses 

• Boot (1999), Petersen and Rajan (2002), Chakraborty and Hu (2006) 

• Common narrative: Banking consolidation  loss of small 

businesses 

• Cetorelli and Strahan (2006), Sapienza (2002) 
Literature in a Picture 

County C 

Small 

Firm 1 

Small 

Firm 2 

Small 

Firm 3 

National 

Firm 

Small Small Small National 

Bank 1 Bank 2 Bank 3 Bank 
Literature in a Picture 

County C 

Small 

Firm 1 

Small 

Firm 2 

Small 

Firm 3 

National 

Firm 

Small Small National Bank Bank 1 Bank 2 
 

 

Real-Side Consolidation 

• Consolidation of real industry (Grullon et al. 2019, CEA 2016, Jia 2008) 

• Technological changes (e.g., supply chain management (Holmes 2008), 

e-commerce (Goldmanis et al. 2010)) 

• Regulatory (e.g., antitrust (Gutierrez and Philippon 2017)) 

• Small banks have comparative advantage in lending to small 

business 

• Our narrative: Loss of small business  changes to viability of 

small banks 

• Not mutually exclusive, but helps us weigh efficacy of policies 

• COVID recession and government response  SmBus  Small Banks 
t 

Literature in a Picture 

County C 

Small 

Firm 1 

Small 

Firm 2 

Small 

Firm 3 

National 

Firm 

Capital 

Markets 

Small Small Small National 

Bank 1 Bank 2 Bank 3 Bank 
Literature in a Picture 

County C 

Capital 

Markets 

Small 

Firm 1 

Small 

Firm 2 National Firm 

Small Small Small National 

Bank 1 Bank 2 Bank 3 Bank 
Literature in a Picture 

County C 

Capital 

Markets 

Small 

Firm 1 

Small 

Firm 2 National Firm 

Small Small National What Now? Bank 1 Bank 2 Bank 
 

 

What We Do 

• Estimate effect of small business performance on small 

bank performance using: 

• Census Quarterly Workforce Indicators (QWI) data on county 

employment by firm size 

• FDIC Summary of Deposits (SOD) data on bank deposits by 

bank size 

• To establish a causality direction 

• Rely upon 2000 county-industry shares as differential 

exposures to national trends by industry and firm size 
 

 

To Show That Effects Are Demand-Driven 

Healthcare: 35 

Transportation: 25 

Retail: 15 

Manufacturing: 25 

Jon’s Home County, 2000 

Healthcare: 25 

Transportation: 15 

Retail: 30 

Manufacturing: 30 

National Small Business 

Employee Trends: Expected Demand in 2002 to 2017 

Small Business 

Healthcare: +31% Financial Service 

Transportation: +8% 

Retail: -16% 

Manufacturing: -20% 

Stefan’s Home County, 2000 
 

Main Findings 

• 1 percent decrease in small-firm employment growth 

0.9 percent decrease in small-bank deposit growth 

• Decrease small-bank income 

• Decrease small-bank small-CI lending, less robust/smaller 

decrease in RE lending 

• Increase provisions 

• No change in large-bank deposit growth 

• Large-firm employment growth  no change in small-bank 

deposit growth 
What Drives Our Findings? 

• Small firm employment drops associated with decreased 

small bank deposit growth 

• Possible explanations: Small firm employment decreases 

makes small bank business model less profitable 

• More likely to be acquired? 

• More likely to look to acquire? 

• More likely to fail? 

• Examine small-bank county deposits and headquarters 

associated with acquisition, failure 
 

What Drives Our Findings? 

• Small firm employment drops associated with decreased small 

bank deposit growth 

• Possible explanations: Small-firm employment decreases 

makes small bank business model less profitable 

• More likely to be acquired? 

• More likely to look to acquire? 

• More likely to fail? 

• Examine small-bank county deposits and HQs associated with 

acquisition, failure 
 

 

 

 

 

Conclusions 

• The composition of the banking industry depends, at least 

in part, on the composition of the real economy 

• Combined with existing literature, there is a feedback loop 

between small-bank and small-business consolidation 

• Evolution of the organizational structure of banking will 

depend, in part, on the evolution of the American small 

business 

• Policies affecting small banks are interdependent with 

policies and trends affecting small business 
 

 

 

2020 Academic Challenge: The Effects of Community Banks on Local Economic Development 

• Bring real-world banking policy questions into the

classroom 

• Nationwide competition for teams of four to five

undergraduate students 

• Two rounds: 

• Written component, six pages, November 20, 2020 

• Finalist presentation component, April 16, 2021 

• Provide question prompts and datasets that may be used 

by students to engage the material