On the Uniqueness of Community banks.pdfVIP

FEDERAL RESERVE BANK OF ATLANTA On the Uniqueness of Community Banks SCOTT E. HEIN, TIMOTHY W. KOCH, AND S. SCOTT MACDONALD Hein is a visiting scholar at the Federal Reserve Bank of Atlanta, the Briscoe Chair Professor of Bank Management and Finance at Texas Tech University’s Jerry S. Rawls College of Business Administration, and the director of the Texas Tech School of Banking. Koch holds the South Carolina Bankers Association Chair of Banking at the University of South Carolina’s Moore School of Business and is president of the Graduate School of Banking at Colorado. MacDonald is an adjunct professor at Southern Methodist University’s Cox School of Business and president of the SW Graduate School of Banking. The authors thank Jerry Dwyer, Scott Frame, Larry Wall, and participants at the Texas Tech finance workshop for helpful comments and Shalini Patel for research assistance. An earlier version of this paper was presented at the 2003 Association of Private Enterprise Education conference. number of years ago in Lubbock, Texas, where the three authors once lived, Athe market was served solely by community banks, each with a different strategic focus and emphasis. The relative tranquility of this banking land- scape changed when the largest community bank in town was acquired by a large bank holding company. Soon after the acquisition announcement, one of the authors was visiting the CEO of a local bank. The author wondered if the large bank holding company’s presence would be viewed as a serious competitive threat by the community banks in Lubbock. Surprisingly, the CEO saw the acquisition as a great opportunity for his bank. First, he felt he would be able to hire many of the better lending officers from the acquired bank because they would feel too constrained by the limits put on the