Alert December 26, 2012

FDIC Issues Community Banking Study

The FDIC released a study concerning community banking (the “Study”), which discusses, among other topics, the definition of “community bank,” structural changes among community and non-community banks, the geography of community banking, the financial performance of community banks compared to non-community banks, the performance of community bank lending specialty groups and capital formation at community banks.

Among the key FDIC findings in the Study were that during the 27-year period from 1984 to 2011, the asset composition of community banks changed with 26.6% of total assets being held in commercial real estate loans in 2011 as opposed to 13.2% in 1984.  During the same period, community banks’ mortgage loans decreased from 29% to 20.3%, consumer loans decreased from 8.3% to 2.7% and commercial and industrial loans remained at a level of 8.3% of total assets.  Community banks’ other assets were in other types of loans and in investment securities.

The FDIC also found in the Study that during the period from 1984 to 2011, community banks’ share of total U.S. banking assets decreased from 38% to 14%, but that community banks comprised 95% of U.S. banking organizations, 92% of FDIC-insured banks and continue to be critical to small business lending, lending to farms and job creation.

The Study developed a new definition of “community bank” that considers the extent of the institution’s traditional lending and deposit gathering activities and the limited geographic scope of the organization, as well as its size.

In a press release accompanying the Study, FDIC Chairman Gruenberg said that, in addition to the steps already taken (such as improvements to the pre-examination process to reduce FDIC requests for unnecessary or irrelevant documents and improvements to the timing of delivery and substance of post-examination reports), the FDIC will seek to “identify other steps to improve the examination and rulemaking process for community banks, while maintaining our supervisory standards.”