Banks that switch charters often wind up suffering financially, according to Indiana University Professor Richard Rosen. Banks that changed charters from 1980 to 1993 did not perform as well as similar banks that retained their charters, the researcher finds.

These banks, Mr. Rosen theorizes, were trying to hide negative information from the government. Switching charters-and thus regulators- meant new examiners unfamiliar with the institution would conduct the reviews.

"This suggests managers of these banks are attempting to help themselves at the expense of shareholders and possibly regulators as well," he writes. "They may be doing this by hiding information or taking excessive risk."

For a copy of "Regulatory Competition: Why Do Banks Change Regulators?" send electronic mail to rrosen

New out-of-state competitors force local banks to become more efficient, three researchers report.To measure efficiency, the economists created a hypothetical super-efficient bank that controls costs better than anyone else in the industry. They compared its cost containment with banks that competed with branches owned by banks in other states.

The comparison shows local banks during the first few years became less efficient, perhaps because they increased marketing expenses.

But community banks in later years increased their efficiency 3% annually by closing branches, laying off employees, and taking other steps to reduce costs, write Office of the Comptroller of the Currency economist Robert DeYoung and New Jersey Institute of Technology economists Iftekhar Hasan and Bruce Kirchoff.

For a copy of "Out-of-State Entry and the Cost Efficiency of Local Commercial Banks," call 202-874-5043.

Competition for Community Reinvestment Act loans may actually reduce credit in low-income neighborhoods, according to three economists.

Federal Reserve Board economist Robert B. Avery, University of Pittsburgh Professor Patricia E. Beeson, and Federal Reserve Bank of Cleveland Research Director Mark S. Sniderman find that there is so much competition for inner-city loans that banks lack enough volume to become experts in the market. This means they are rejecting loans that a more experienced lender in the market would approve.

Rules that restrict CRA lending to just a few institutions per neighborhood could increase lending because these banks-as experts in the market-would approve more marginal loans. Lending also would rise if banks pooled their resources in community development banks or loan consortiums, they write.

For a copy of "Information Dynamic and CRA Strategy," call 216-579-3079.

De novo community banks are much better at making small-business loans than more established institutions, two university economists conclude.

New York University Professor Lawrence J. White and University of Miami Professor Lawrence G. Goldberg write that banks in their third year of operation have 5% to 7% more small-business loans than comparable institutions.

The professors theorize that de novo banks attract ambitious loan officers from competing institutions who are able to identify new lending opportunities. Also, they said de novo banks may be able to move more quickly to capitalize on lending opportunities.

For a copy of "De Novo Banks and Lending to Small Businesses: An Empirical Study," call 212-998-0880.

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