Weathering the COVID-19 storm: The case of community banks

We examine the immediate impact of COVID-19 on the performance of FDIC chartered banks. Our experimental design analyses the performance of community banks and large banks before and during the COVID-19 pandemic. Community banks significantly outperform large banks in several key measures in the first three-quarters of COVID-19. Findings are consistent with the view that the advantages of solid customer relationships and a greater understanding of local businesses are invaluable during periods of high externalities. This result is more pronounced for community banks located in metropolitan areas. We also find that the pandemic’s adverse effects on bank performance are minimized in states with higher quality healthcare facilities, as measured by our healthcare index. In addition, the performance of community banks varies across geographical regions during this pandemic period. Finally, our study expands the understanding of how community banks’ performance and risk-taking change during a pandemic.