Slideshow Dos and Don'ts for Small Banks

Published
  • October 09 2013, 8:00am EDT

Think twice about buying a far-away bank. Consider getting into equipment leasing. Trust your instincts in credit decisions. Those are among the insights from a slew of research papers on community banks presented at a Federal Reserve conference last week.

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Unintended Consequences

The Dodd-Frank act's effort to help consumers by standardizing loan terms actually stymies the availability of credit to needy borrowers, a team or researchers concluded.

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Peril of Long-Distance M&A

The performance of bank acquisitions deteriorates as the geographical distance between buyer and seller increases, another team found.

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Volcker Rule Fallout

Community banks that use derivatives have better financial results. As a result, researchers questioned a belief that the Volcker Rule would be neutral for smaller institutions.

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Failures Harm Communities

A bank's failure can harm the economic performance of the community it serves, a Fed researcher determined.

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Valuing Transparency

Community banks' ability to assess the creditworthiness of a small business increased the borrower's access to credit, according to a pair of FDIC researchers who quantified the effect.

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Intangibles Matter

Statistics support the value of bankers' use of subjective knowledge, or soft information, to lend to small businesses, a similar study found.

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Learning About Leasing

Banks that focus on equipment leasing perform better than those that avoid it, another study found.

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Betting on the Jockey

Management is important to a bank's success, a team of Fed researchers found. Management quality "is particularly important during times of extreme economic stress," their study said.

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Looking at Bank Comebacks

A study of improved Camels ratings reached a similar conclusion about leadership. A majority of the banks with significant Camels improvement had changes in ownership or management.

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Regulatory Consistency

Data debunk the notion that regulators have been inconsistent in assigning Camels ratings, although supervisors were "somewhat tighter" with banks in the early 1990s and 2008, research concluded.

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Easy Math

A simple capital ratio is about as effective as a more complex ratio, a team of researchers determined after looking at more than 400 bank failures.

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Another Call for Simplicity

Dodd-Frank is "an ineffectual remedy" and "will not work unless simplified and codified quickly," according to the controversial findings of one research team.

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