This April, the Federal Deposit Insurance Corporation (FDIC), the U.S. banking regulator and insurer, held its first Academic Challenge, which engaged teams of undergraduates from across the nation in examining the impact of community banks on local economic development.
A team of four Cal State Fullerton economics students placed among the top five teams, along with teams from such research-focused universities as the University of Chicago, the University of Delaware and the University of North Carolina at Chapel Hill. A team from New York’s SUNY-Geneseo was selected the winner.
The Titan team members were Quinlan Cantrell ’21, Owen Hoogeveen ’21, Ivan Patel ’21 and Quynh Phan ’21.
After spending two months researching and writing a paper on the role of community banks on small businesses, low-income communities and agricultural-based counties in Southern California, the team submitted the research and then were invited to the virtual final competition on April 16. That meant another two months preparing for a 15-minute presentation to a six-judge panel – community bank CEOs and FDIC economics and banking officials – followed by a 15-minute Q&A session.
“Each student contributed greatly to the writing, research and data analytics, so equal credit is deserved by our whole team,” says Cantrell. “The CSUF economics faculty also really came together to help us with our presentation, and it was a wonderful effort from the faculty.”
A Look at the Impact of Community Banks
The CSUF team’s report focused on the 130 community banks in California, looking at metropolitan Orange, Los Angeles and San Bernardino counties and the Central Valley’s agricultural Kern, Fresno and Tulare counties.
“Based on our results and on our personal interviews with local community bank leaders, we note that community banks are adapting to operate effectively in an economic environment characterized by low interest rate margins. Despite the ongoing efforts by the FDIC toward easing the regulatory burden, our analysis and conversations with community bank leaders indicate that there is room to implement further changes in this regard,” the team reported.
Specifically, the Titan economics students suggested that FDIC examiners in this sector be former community bankers who understand the unique needs and challenges of this sector, that the FDIC should expedite review of community bank business plans that adapt to changing market conditions, reduced compliance costs and appraisals for community banks, and exemption from escrow requirements for loans held in the portfolios of such institutions.
“Community banks can manage risk better than non-community banks,” they reported. “It is likely that the personal connection community banks make with their customers help reduce the number of nonperforming loans when compared to commercial banks that do not foster that same connection.”
The team suggests that following these prescriptions will result in an increased supply of mortgage loans, creating a greater stock of affordable housing; greater outreach to the 25% of California households that are unbanked or underbanked; and specific financial empowerment to low-income minority communities in South Los Angeles.