We examine the relationships between ownership structure and both earnings and risk-taking among community banks before, during, and after the US financial crisis. We find that publicly-held small community banks had lower earnings than privately-held ones before the recession, but had higher earnings during and after the recession. Publicly-held small community banks exhibited similar risk-taking to privately-held ones before and during the recession, but greater risk-taking after. We also find that publicly-held small community banks de-risked more slowly than privately-held ones following the recession. Large community banks, on the other hand, show no consistent relationship between ownership structure and earnings, and a strong cyclical relationship between ownership structure and risk-taking. These findings expand our understanding of how community bank performance and capital accumulation behaves through different cyclical periods, and how ownership structure affects that behavior.

In this study, we investigate the extreme loss tail dependence between stock returns of large US depository institutions. We find that stock returns exhibit strong loss dependence even in their limiting joint extremes. Motivated by this result, we derive extremal dependence-based systemic risk indicators. The proposed systemic risk indicators reflect downturns in the US financial industry very well. We also develop a set of firm-level average extremal dependence measures. We show that these firm-level measures could have been used to identify the firms that were more vulnerable to the 2007–2008 financial crisis. Additionally, we explore the performance of selected systemic risk indicators in predicting the crisis performance of large US depository institutions and find that the average stock return correlations are also good predictors of crisis period returns. Finally, we identify factors predictive of extremal dependence for the US depository institutions in a panel regression setting. Strength of extremal dependence increases with asset size and similarity of financial fundamentals. On the other hand, strength of extremal dependence decreases with capitalization, liquidity, funding stability and asset quality. We believe the proposed indicators have the potential to inform the prudential supervision of systemic risk.

Failures and FDIC losses for community banks during the banking crises of the late 1980s and late 2000s are compared. Despite increases in risky commercial real estate (CRE) lending and more severe economic shocks in the recent crisis, failure rates were lower. We find that other changes in bank characteristics, like higher capital, made community banks more resilient to shocks. In contrast, FDIC losses on failed banks were higher. These are not explained by changes in CRE exposure or economic shocks. We find that an interest-receivable variable is predictive of failures and FDIC losses. Implications for prompt corrective action are discussed.