Friday, 12 October 2018: 5:50 PM
Although declining in number, community banks still play an important role in the banking sector. A relatively small but nonetheless important subset of these institutions are Minority Depository Institutions (MDIs). This paper examines the role and performance of MDIs based on a dataset with financial and ownership information dating to the 1970s. This dataset is publicly available from the Federal Reserve and has not been previously used the way in which we intend to use it as far as we know. More specifically, one part of the investigation involves comparing MDIs and non-MDIs at the census-tract level over time.
By matching the location of MDIs and comparable non-MDIs for both headquarters and branches, we examine differences in performance over time. Based on demographic information, moreover, we take into account the impact of various demographic factors on the performance of the two types of banks. The techniques used in the comparative analysis includes propensity scoring techniques and difference-in-difference techniques. In the analysis, we use a probit model to examine the role played by demographic and economic factors in determining whether an institution is established as an MDI or non-MDI, since information is available as to the establishment date of the two types on banks in the same neighborhoods.
Information is also available for when an institution becomes an MDI and when it exits. Based upon the available financial and economic data, we examine these exits, focusing on various factors that might be associated with those that fail and those that become non-MDIs, taking into the timing of the exits.
We compare and contrast the performance of different types of MDIs as well as examine their differences with non-MDIs as discussed above. It will be important to consider whether such differences matter with respect to performance, including risk-taking behavior.