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March/April 2013, 
Vol. 95, No. 2
Posted 2013-03-26

The Future of Community Banks: Lessons from Banks That Thrived During the Recent Financial Crisis

by R. Alton Gilbert, Andrew P. Meyer, and James W. Fuchs

The authors study the distinguishing features of community banks that maintained the highest supervisory ratings during the recent financial crisis (2006 to 2011). They identify balance sheet and income statement ratios that separate these thriving banks from other community banks and supplement that analysis with detailed interview evidence from a sample of thriving banks. They conclude that there is a strong future for well-run community banks and that the banks that prosper will be the ones with strong commitments to maintaining risk control standards in all economic environments. There is no one-size fits-all strategy, however, and each bank must develop a business plan that works in its market.