A0549
Title: The evolution of community bank interconnectedness
Authors: Giorgi Nikolaishvili - Wake Forest University (United States) [presenting]
Abstract: It is found that the community banking sector in the United States has become more interconnected since the global financial crisis, which implies greater exposure to systemic risk and increased vulnerability in future financial crises. A hierarchical dynamic factor model is estimated using a Bayesian approach to extract posterior distributions of national, regional, and state-level latent drivers of quarterly fluctuations in state-average community bank return-on-equity for all 50 US states. The resulting estimates show evidence of both considerable national comovement and state-specific idiosyncrasy with no signs of significant regional comovement. Furthermore, the results show a decrease in the intensity of idiosyncratic dynamics of state-level community bank profitability since the crisis, along with an increase in national comovement across most states.
