The behavior of depositors, the consequences of bank failures and the evolution of small business lending were the three key themes of the 2025 Community Banking Research Conference, held Oct. 7-8 at the St. Louis Fed. The annual conference—sponsored by the Federal Reserve System, the Conference of State Bank Supervisors (CSBS) and the Federal Deposit Insurance Corp. (FDIC)—spotlights emerging research on issues important to the community banking industry and features keynote addresses by leading community bankers and regulators. More than 1,300 academics, bankers and regulators participated in person or virtually. (For a recap of the entire conference, see this Open Vault blog post.)
The conference featured nine papers, two poster session papers, several keynote addresses and highlights from the 2025 CSBS Annual Survey of Community Banks (PDF). The conference also included a presentation from the University of Tennessee-Martin student team, winners of the 2025 CSBS Case Study Competition.
Presentations featuring these papers and reactions from academic and community banking participants were recorded and are available on the conference website.
Examining the Impact of Failed Banks
The academic papers were divided into three sessions, grouped by theme: deposit franchise value and market power, failed banks, and innovation and technology in small business lending. The three papers in the failed banks session provided a well-rounded examination of the links between failed banks and supervisors, surviving banks and local businesses.
In “Supervising Failing Banks” (PDF), authors Sergio Correia of the Federal Reserve Bank of Richmond, Stephan Luck of the Federal Reserve Bank of New York and Emil Verner of MIT examine the role of supervision in overseeing troubled banks to understand how it contributes to financial stability. They document that supervisors tend to be well informed about failing banks’ financial trouble well ahead of failure; bank closures are almost always a supervisory decision and are conducted in an orderly fashion with low losses for uninsured depositors. The authors also find that heightened supervisory scrutiny increases the accuracy of financial reporting, the frequency of public enforcement actions and the likelihood of bank closures. In addition, supervision affects bank capitalization and the size of surviving banks. This paper won the 2025 John W. Ryan Award for Most Significant Contribution to Community Banking Research.
The second paper in the session, “When Banks Fail: Depositor Attention and the Cost of Funding for Survivors” (PDF), documents a novel channel through which bank failures affect the economy by increasing the funding costs of surviving banks. Authors Brian Jonghwan Lee of Emory University and Stefan Walz of Columbia Business School find that competitor banks significantly raise deposit rates following a nearby bank failure, even when controlling for local economic conditions and bank fundamentals. The effect is persistent, lasting up to three years, and is stronger following highly publicized failures. Their findings highlight how banking crises propagate indirectly by making funding more expensive, even if remaining banks are safe, thereby constraining credit supply and amplifying economic downturns.
In “Bad Bank, Bad Luck? Evidence from 1 Million Firm-Bank Relationships” (PDF), authors Peter Lambert and Yannick Schindler of the London School of Economics examine the effects of bank failure on firm performance. Their headline finding is that firms with preexisting relationships to banks that later failed typically experience large and lasting negative consequences, including lower employment growth and firm failure. These impacts of bank failure on firm performance persist for more than 10 years, are present for bank failures both during and outside the U.S. financial crisis period and are strongest for smaller enterprises. Their findings suggest that bank failures exert a substantially larger influence on the real economy than previously recognized, possibly requiring a reevaluation of current regulatory approaches to managing such events.
Additional Research on Depositor Franchise Value, Small Business Lending
I encourage you to look at these second session papers, as well as those presented on depositor franchise value and market power in session one and innovation and technology in small business lending in session three. They are all available in print and video form.
The St. Louis Fed has hosted the annual Community Banking Research Conference on behalf of the Federal Reserve, the CSBS and the FDIC since its inception in 2013. Papers and videos from all past proceedings are available on the conference website, communitybanking.org. The 14th annual Community Banking Research Conference will be held in the fall of 2026. Updates on the 2026 conference—including the exact dates—will be posted to the conference website and on X (follow @CBResearchConf).