Abstract
We examine the immediate impacts of COVID-19 on FDIC chartered banks’ performance. Our experimental design analyzes the performance of community banks and large banks before and during the COVID-19 pandemic. Community banks outperform large banks significantly in several key measures in the first three-quarters of COVID-19, consistent with the view that the advantages of strong customer relationships and a greater understanding of the local businesses pave the way during high externalities. This result is more pronounced for the community banks located in metropolitan areas. We find that the pandemic’s adversity on bank performance is resisted more in the states with high healthcare facilities. Besides, the performance of community banks varies across geography during this pandemic period. Further analyses reveal that the decline in risk-taking and de-risking of assets occurs faster in community banks than the larger conventional banks. Our study expands the understanding of how community banks’ performance and risk-taking changes during a pandemic period.
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