M-RCBG Associate Working Paper No. 159

Community Banking and Its Impact on America: Updated Analysis for the COVID Economy

Marshall Lux
Matthew Shackelford



This working paper focuses on the US community banking industry, trends in its development over the past five years, and the impact of the COVID-19 crisis. It begins with a discussion of the American community banking industry from both historical and present-day perspectives with the goal of understanding who community banks serve, what they do, and what their role is within the broader economy. The paper then turns to quantitative and qualitative analyses of community banks from 2015 to 2019. We detail the ways in which the industry has shifted over that five-year period and highlight the continued tribulations of community banks attempting to compete in the modern financial system. In particularly, we examine continued consolidation and the impact of changes to the Dodd-Frank regulations that went into effect in 2018. We then examine the performance and resilience of community banks in the COVID-19 pandemic, and we highlight their critical role in the Paycheck Protection Program (PPP). We also examine the disadvantages faced by minority-owned businesses in accessing PPP funding. The paper concludes with our policy proposals, broken down into the categories of smart regulation, support for community banks, and support for community bank-related industries, to put the community banking industry onto solid footing to continue supporting the American economy.

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