ECONOMIC REPORT OF THE PRESIDENT

Box 6-3: The Performance of Community Banks1
Community banks, defined generally here as banks with less than
$10 billion in assets, are an important part of the U.S. banking landscape,
providing access to banking services for millions of Americans and
serving as the only local source of brick-and-mortar traditional banking
services for many counties, as well as key sources of credit for rural
communities and small business loans.2 The number of community
bank institutions has declined steadily over the last two decades, yet
the passage of Dodd-Frank in 2010 does not appear to have affected
this long-term trend. Community banks face a challenging competitive
and macroeconomic environment, but since Dodd-Frank was passed,
the growth rate of lending has rebounded, market share has stabilized
for some important types of community bank lending, profitability
(measured by return on assets) has returned to pre-crisis levels for the
smallest community banks, geographic coverage across counties has
remained stable, and the largest community banks have been expanding
their geographic reach.
The Dodd-Frank Act is designed to prevent excessive risk-taking
and protect consumers from exploitative bank lending practices. It also
distinguishes between banks on the basis of size—many rules include
exemptions and tailoring for financial institutions with less than $10
billion in assets—to help keep it from being an undue burden on small
banks.
Economic evidence shows that community banks remain healthy
and have recovered together with big banks since 2008. The annual
growth rates of lending by community banks in each asset range have
returned to levels seen prior to the crisis and are well above the negative
rates seen following the crisis (see Figure 6-viii). Since 2008, community
banks’ market share of total loans has held steady at around 20 percent.
Access to community banks has remained steady since 1994 at the
county level. About 99 percent of counties have a community bank office
(either a main office or a brick-and-mortar branch office), something
that has not materially changed since 2010. About 1 in 4 counties rely
exclusively on community banks for brick-and-mortar services within
county lines. The steady decline in the number of community bank institutions
over the past two decades has largely been offset by an increase
in the number of brick-and-mortar branch offices per main office. The
1 For more information on Box 6-3, as well as other statistics on the health of community
banks over the last two decades, please see CEA’s (2016) issue brief “The Performance of
Community Banks over Time.”
2 Asset size is computed in constant 2009 dollars.
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