Economics and Finance Faculty Publications and Presentations
Document Type
Article
Publication Date
2020
Abstract
This study compares 5,286 community banks operating in rural and metropolitan counties from 2000 through the end of 2013 on the variables contributing to bank profitability using pooled OLS, pooled time-series OLS, and dynamic panels methodologies. Following the SCP and competition-fragility literature, one would expect a difference in the variables contributing to profitability. The size of the coefficients indicates that the variables contributing to profitability differ in magnitude when comparing community banks in metropolitan counties to those in rural counties. Both the pooled and time-series OLS models indicate that bank size contributes to profitability more in metropolitan areas; however, on average, rural banks have higher return on assets, higher net interest margins, and higher non-interest income. These findings provide some support for the competition-fragility argument that more competition in banking, as seen in metropolitan areas, leads to lower net interest margins. Arguably, the higher net interest margins and contribution of non-interest income to profits in the concentrated rural bank markets supports the structure-conduct-performance paradigm that when few competitors exist in a market, they are more likely to collude, implicitly or explicitly, to extract higher profits. The findings of this study indicate that community banks are not a homogenous group and highlight the importance of segregating rural and metropolitan banks when examining the US community banking industry.
Recommended Citation
Morrison, R.D. and Escobari, D., 2020. US COMMUNITY BANK PROFITABILITY: A CROSSSECTIONAL AND DYNAMIC PANEL ANALYSIS OF RURAL AND METROPOLITAN BANKS. Global Journal of Accounting & Finance (GJAF), 4(1).
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Publication Title
Global Journal of Accounting & Finance (GJAF)
Comments
It is published in Gold Open Access which allows free access to everyone, as well as the re-use of the work as long as the authors are acknowledged and cited. The Journal is also licensed under a Creative Commons Non-Commercial Attribution 4.0 International License.