Question

The banking industry structure in the US is unique in that a few very large banks (assets over $1 trillion) co-exist with many small banks (assets less than a few hundred million dollars) and a number of banks in between. What do you consider as a small bank? Do small banks actually perform better than the larger banks? Does asset size matter?

Answer 1

Consideration: Small banks are those banks in the US having approximately less than $1.1 billion assets in two calendar year-end. Assets create through lending capacity; since these banks are small, they have limited resource in terms of deposits for lending.

Performance: Small banks can’t perform better than large banks, although these banks serve the needs of local families, farmers, etc. These needs are fulfilled by small amounts of loans, which are provided by small banks. Since the banks are small, they have limited capacity of recovery and expansion.

Size: Asset size is very important for future growth; it indicates higher liquidity and solvency of such banks. Therefore, it matters.