FDIC Analysis Examines Community Bank Economies of Scale

The FDIC today released a new staff study highlighting how economies of scale developed at community banks (those with $10 billion or less in assets) between 2000 and 2019. Between that period, the FDIC estimated that “the cost-minimizing size of a bank’s loan portfolio rose from approximately $350 million to $3.3 billion,” suggesting that “efficiency gains accrue early as a bank grows from $10 million in loans to $3.3 billion, with 90% of the potential efficiency gains occurring by $300 million.”

At that size, the report noted that banks have estimated cost of about 4.76%. Banks with a loan portfolio of double that size—around $600 million—have estimated costs of 4.33% and have accrued 95% of the potential cost savings as a result of their increased size, the FDIC said.

The report also found that the financial crisis “temporarily interrupted this trend and costs increased industrywide, but a generally more cost-efficient industry reemerged, returning in recent years to pre-crisis trends.”