Closely held banks may face operational challenges in raising external capital and recruiting future managers, especially in rural areas. At the same time, closely held banks may have certain operational advantages, including the ability to focus on long-term goals and to minimize principal-agent problems that may arise from the separation of ownership and operational control. This paper compares the performance of closely and widely held banks as identified in a survey of FDIC bank examiners and finds that closely held banks do not appear, on net, to be underperforming widely held banks in recent years. Closely held banks where the day-to-day manager is a member of the ownership group seem to outperform banks with a hired manager. The survey of bank examiners in three FDIC supervisory Regions was used to identify the ownership and management structure of more than 1,350 community banks. The survey results suggest that almost 75 percent of community banks in these Regions can be regarded as closely held, typically on the basis of family or community ties.
Last Updated: January 1, 2015