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Do Community Banks Benefit From Diversification
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Book Synopsis Do Community Banks Benefit from Diversification? by : Kevin J. Stiroh
Download or read book Do Community Banks Benefit from Diversification? written by Kevin J. Stiroh and published by . This book was released on 2004 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the link between diversification and risk-adjusted performance for small, community banks. The results show diversification benefits within broad activity classes, but not between them. Specific business lines are linked with very different ex post outcomes, however, so the mix of activities is also important. Increased focus on noninterest income-generating activities is associated with declines in risk-adjusted performance, as are commercial and industrial lending, consumer lending, and trading. This is a potential dark side of the search to diversify as managers may enter businesses where they have little experience or comparative advantage. A final set of results shows significant differences in the determinants of risk-adjusted performance for community banks relative to larger banks, which suggests that a competitive opportunity remains for community banks.
Book Synopsis Reducing the Risk at Small Community Banks by : William R. Emmons
Download or read book Reducing the Risk at Small Community Banks written by William R. Emmons and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Most community banks face relatively high levels of diversifiable credit risk because they have relatively few loan customers (idiosyncratic risk) and are not geographically diversified (local market risk). We simulate mergers among community banks to quantify the relative contributions of idiosyncratic risk and local market risk to the default risk assumed by community banks. We find that the greatest risk-reduction benefits are achieved by increasing a community bank's size, regardless of where the expansion takes place. We interpret this result as evidence that idiosyncratic risk dominates local market risk, especially at rural banks. Community banks face enormous pressure to grow, yet the pressure to geographically diversify is limited. As a consequence, larger community banks are likely to replace smaller community banks, but their focus on relationship lending will not disappear.
Book Synopsis The Impact of Diversification on Bank Holding Company Performance by : Chinpiao Liu
Download or read book The Impact of Diversification on Bank Holding Company Performance written by Chinpiao Liu and published by . This book was released on 2009 with total page 364 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bank holding companies (BHCs) are hypothesized to achieve potential portfolio and synergistic benefits through various forms of diversification. On the other hand, diversification can generate new managerial problems or agency costs. This dissertation examines five issues. 1) Do all the various forms of diversification have the same favorable/unfavorable effects on BHCs' performance?, 2) Are there any interaction effects among the various types of diversification?, 3) Since the business strategies of large BHCs are different from those of small BHCs, do the diversification effects vary by size?, 4) How did diversification impact BHC performance during the 2007-2008 financial crisis?, and 5) What types of diversification-associated Merger and Acquisitio should BHCs employ to take advantages of diversification benefits? Overall Results - The study finds that not all forms of diversifications have the same impacts on BHCs' performance. Some types of diversification support the hypothesis of favorable portfolio benefits and cost synergies, while other findings support the hypothesis of unfavorable agency costs. Non-interest-income diversification has the strongest favorable impacts on BHCs' performance as it both increases returns and reduces portfolio risk. Security diversification has unfavorable impacts on accounting returns but favorable impacts on market returns. Off-balance-sheet diversification has unfavorable impacts on risk and it does not contribute to BHCs' returns. The largest unfavorable impact is on derivatives losses. Moreover, for some diversification measures, the impacts depend on the scale of their associated activities. When the scale of the diversified activity is large enough, the net diversification impact may change its sign. In general, among the various diversified activities where the sign of the impacts switch with scales, loan diversification switches direction from favorable to unfavorable. BHCs might tend to make increasingly risky loans when their scale of loans expands. Moreover, agency problems might also become difficult to control. On the other hand, security diversification tends to switch the direction of impact from unfavorable to favorable. With larger security portfolios, BHCs are more capable of reducing risk and increasing returns with a wide selection of securities. Results for Various Size Banks - For small banks, larger community banks, and regional BHCs, non-interest-income and loan diversifications generally enhance performance while security portfolio and off-balance sheet diversifications reduce performance. For very large money center banks, diversification into off-balance-sheet activities generates the strongest performance benefit, while domestic geographic, loan and non-interest income diversifications also have favorable impacts. On the other hand, security portfolio diversification has a mix of both favorable and unfavorable effects. Focusing on BHCs with international loan portfolios, off-balance-sheet diversification creates the strongest performance benefits, followed by domestic geographic diversification. On the other hand, international geographic and loan diversifications, along with security portfolio and non-interest income diversifications reduce bank performance. Over all, it appears that larger banks (with the exception of international banks) achieve more favorable diversification benefits. On the other hand, the interaction effects of various forms of diversifications appear to benefit small BHCs the most. Smaller BHCs may not benefit through single channel diversification because doing so likely increases operating costs while the bank remains unable to fulfill their target customers' full range of service needs. However, by multi-channel diversification, the interaction benefits of diversifications can be achieved. On the other hand, larger BHCs can benefit through single channel diversification because they have more market power and are able to enjoy the benefits of diversified portfolios and cost synergies generated through economies of scale. However, multi-channel diversification may make larger BHCs more difficult to manage. For example, they might engage in unfamiliar and risky business where operating and agency costs offset potential portfolio benefits. Overall, diversification generally supports the hypothesis of favorable portfolio benefits and cost synergies. Furthermore, diversification has a consistently more favorable impact during the recent financial crisis. In general, BHCs with widely diversified activities will suffer less than other BHCs with concentrated activities when financial crisis occurs. Impact of Merger Activity - The study also finds that Merger and Acquisition activity associated with several forms of diversification improve BHC performance, while the other forms of diversification have insignificant impacts on performance. The overall implications for BHCs are that not all diversification-driven mergers generate benefits for BHCs. Hence, BHCs should choose the right mergers which meet their business goals.
Book Synopsis Community Banks by : Christopher B. Joseph
Download or read book Community Banks written by Christopher B. Joseph and published by Nova Science Publishers. This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides an overview of an FDIC Community Banking Study which identifies and explores the issues and questions relating to community banks. To study community banks, it is necessary to define them. In the past, most analysts have used a maximum asset size, often $1 billion. However, using only a size cut-off does not account for industry growth, and the attributes associated with community banks are not exclusively tied to size. The value of community banks has always been associated with the unique combination of services they provide to their customers, as well as the manner in which they do business. Community banks tend to be relationship lenders, characterised by local ownership, local control, and local decision making. By carrying out the traditional banking functions of lending and deposit gathering on a local scale, community banks foster economic growth and help to ensure that the financial resources of the local community are put to work on its behalf. Community banks have always been inextricably connected to entrepreneurship. As of 2011, they held 14 percent of banking industry assets, but 46 percent of the industry's small loans to farms and businesses.
Book Synopsis The Importance of Scale Economies and Geographic Diversification in Community Bank Mergers by : William R. Emmons
Download or read book The Importance of Scale Economies and Geographic Diversification in Community Bank Mergers written by William R. Emmons and published by . This book was released on 2001 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Belt and Road Strategy in International Business and Administration by : Liu, Wei
Download or read book The Belt and Road Strategy in International Business and Administration written by Liu, Wei and published by IGI Global. This book was released on 2019-04-12 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt: International business strategies orbit around the idea of strengthening partnerships with other countries. Developing new and innovative opportunities to connect neighboring countries bodes well for those countries and the entire world. The Belt and Road Strategy intends to do just that by strengthening partnerships and constructing a comprehensive and multilevel interconnected network to achieve pluralistic, independent, balanced, and sustainable development. The Belt and Road Strategy in International Business and Administration is a vital collection of information that discusses one of most important programs embodying economic, regional, and political demands in the Asian and European environment. Featuring research on topics such as business development, business law, and multinational enterprise, this book is ideally designed for government officials, professionals, researchers, students, and professors seeking coverage on the theoretical and practical contributions of international business.
Book Synopsis Is Bigger Necessarily Better in Community Banking? by : Joseph P. Hughes
Download or read book Is Bigger Necessarily Better in Community Banking? written by Joseph P. Hughes and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Community Bank Strategic Lending Choices and Performance by : Gary Whalen
Download or read book Community Bank Strategic Lending Choices and Performance written by Gary Whalen and published by . This book was released on 2007 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Most community banks have been unable to increase dramatically the percentage of their revenue coming from non-traditional sources and so remain reliant on the net income generated by traditional intermediation activities. This continued dependence means that the lending strategy chosen by any community bank is a key determinant of its survival. In this study the lending strategies chosen by a sample of 5508 community banks are examined over the 1995 - 2004 period. Links among the chosen strategies, strategic change, and performance are also investigated using both univariate and regression analysis. The analysis of lending strategy trends reveals an increase in the percentage of community banks that emphasize lending to business borrowers and a decrease in the fraction of institutions specializing in loans to non-commercial customers. The data also indicate that the typical community bank changed its lending strategy over the decade, and many did so more than once. Differences in performance are evident across the strategic groups. The results indicate that business real estate lenders earned the highest returns over the decade, but also were the riskiest. When returns are adjusted for risk, a number of lending strategies produced performance exceeding that of business real estate lending, including residential real estate lending, diversified lending, and agricultural lending. The results show that strategic change reduces returns and increases risk, all else equal. The evidence indicates a large performance disadvantage for the smallest community banks regardless of the lending strategy they pursue"--Office of the Comptroller of the Currency web site.
Book Synopsis Is Bigger Riskier? by : Nadine Moussa Soubra
Download or read book Is Bigger Riskier? written by Nadine Moussa Soubra and published by . This book was released on 2009 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt: The US banking industry witnessed ample reform on the regulatory, the financial and the technological levels. These reforms amended the structure of the banking industry which evolved from the cluster of small banks to the dominance of nati onwide bank holding companies (BHCs). These large bank holding companies became increasingly diversified into nonbanking type of activities. The emergence of ve ry large banks makes it imperative to assess the ensuing risk implications on th e US banking industry. The Markowitz portfolio theory on market risk and returns is used to understand the effect of diversification in nonbanking activities on BHC risk. Nonbanking a ctivities are usually more risky than core banking activities. Diversification b enefits hence exist as long as the benefit from diversification outweighs the hi gher concentration into risky activities. The interaction of total BHC equity risk with size reveals a nonlinear relation ship between size and risk. As bank holding companies grow larger in size, their risk first decreases then it starts increasing again. The threshold size is det ermined to be around $6 billion. Hence diversification benefits do exist, yet th ey are quickly consumed upon reaching the threshold size of $6 billion.
Book Synopsis Community Banks by : Christopher B. Joseph
Download or read book Community Banks written by Christopher B. Joseph and published by . This book was released on 2013 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides an overview of an FDIC Community Banking Study which identifies and explores the issues and questions relating to community banks. To study community banks, it is necessary to define them. In the past, most analysts have used a maximum asset size, often $1 billion. However, using only a size cutoff does not account for industry growth, and the attributes associated with community banks are not exclusively tied to size. The value of community banks has always been associated with the unique combination of services they provide to their customers, as well as the manner in which they do business. Community banks tend to be relationship lenders, characterized by local ownership, local control, and local decision making. By carrying out the traditional banking functions of lending and deposit gathering on a local scale, community banks foster economic growth and help to ensure that the financial resources of the local community are put to work on its behalf. Community banks have always been inextricably connected to entrepreneurship. As of 2011, they held 14 percent of banking industry assets, but 46 percent of the industry's small loans to farms and businesses.
Author :International Monetary Fund Publisher :International Monetary Fund ISBN 13 :9781589063488 Total Pages :60 pages Book Rating :4.0/5 (634 download)
Book Synopsis Germany's Three-Pillar Banking System by : International Monetary Fund
Download or read book Germany's Three-Pillar Banking System written by International Monetary Fund and published by International Monetary Fund. This book was released on 2004-06-21 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: German banks tend to be less profitable than their foreign counterparts. This paper estimates the likely effect of the phaseout of state guarantees for public sector banks, reviews the various ways in which public policy could contribute to their restructuring, and discusses the various arguments for and against public involvement in banking.
Book Synopsis Diversification, Organization, and Efficiency by : Peter G. Klein
Download or read book Diversification, Organization, and Efficiency written by Peter G. Klein and published by . This book was released on 1997 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Bank Performance written by Jacob Bikker and published by Routledge. This book was released on 2008-10-27 with total page 173 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economic literature pays a great deal of attention to the performance of banks, expressed in terms of competition, concentration, efficiency, productivity and profitability. This book provides an all-embracing framework for the various existing theories in this area and illustrates these theories with practical applications. Evaluating a broad field of research, the book describes a profit maximizing bank and demonstrates how several widely-used models can be fitted into this framework. The authors also present an overview of the current major trends in banking and relate them to the assumptions of each model, thereby shedding light on the relevance, timeliness and shelf life of the various models. The results include a set of recommendations for a future research agenda. Offering a comprehensive analysis of bank performance, this book is useful for all of those undertaking research, or are interested, in areas such as banking, competition, supervision, monetary policy and financial stability.
Book Synopsis International Convergence of Capital Measurement and Capital Standards by :
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Governance, Regulation and Bank Stability by : T. Lindblom
Download or read book Governance, Regulation and Bank Stability written by T. Lindblom and published by Springer. This book was released on 2014-07-29 with total page 468 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides novel insight into the governance of banks and looks at regulatory measures for strengthening bank stability. It includes empirical studies on the relationship between the board structures of banks and their financial risk-taking and analyses the determinants of bank reputation and the future prospects of small banks.
Book Synopsis Bank Mergers & Acquisitions by : Yakov Amihud
Download or read book Bank Mergers & Acquisitions written by Yakov Amihud and published by Springer Science & Business Media. This book was released on 1998-02-28 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: As the financial services industry becomes increasingly international, the more narrowly defined and historically protected national financial markets become less significant. Consequently, financial institutions must achieve a critical size in order to compete. Bank Mergers & Acquisitions analyses the major issues associated with the large wave of bank mergers and acquisitions in the 1990's. While the effects of these changes have been most pronounced in the commercial banking industry, they also have a profound impact on other financial institutions: insurance firms, investment banks, and institutional investors. Bank Mergers & Acquisitions is divided into three major sections: A general and theoretical background to the topic of bank mergers and acquisitions; the effect of bank mergers on efficiency and shareholders' wealth; and regulatory and legal issues associated with mergers of financial institutions. It brings together contributions from leading scholars and high-level practitioners in economics, finance and law.
Book Synopsis Cross-border Diversification in Bank Asset Portfolios by : Claudia M. Buch
Download or read book Cross-border Diversification in Bank Asset Portfolios written by Claudia M. Buch and published by . This book was released on 2004 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
