IBBEA Implementation and the Relative Profitability of Small Banks

Abstract

The enactment of Riegle‐Neal IBBEA in 1994 encouraged bank mergers and acquisitions. Empirical evidence indicates that large banks benefited from IBBEA enactment. However, there is little, if any, evidence of the impact of the act on small banks’ profitability relative to large banks. This study examines the impact of IBBEA on the performance of small banks in the period preceding and following IBBEA implementation. Evidence is presented that indicates the return on assets of small banks was significantly less than that of larger banks in the post‐IBBEA period. This is contrary to the results of the pre‐IBBEA period when small banks’ profitability was competitive with and in some cases even better than large banks’ profitability. It is concluded that the enactment of IBBEA has placed small banks at a competitive disadvantage which could eventually lead to their demise.

Citation

Nippani, S. and Washer, K.M. (2005), "IBBEA Implementation and the Relative Profitability of Small Banks", American Journal of Business, Vol. 20 No. 2, pp. 21-24. https://doi.org/10.1108/19355181200500008