Abstract: Governance and the Success of U.S. Community Banks, 1790-2010: Mutual Savings Banks, Local Commercial Banks, and the Merchants (National) Bank of New Bedford, Massachusetts
Annual time series data show that from 1790 through 2010 only about one percent of U.S. commercial banks failed each year on average. Many community banks, including mutual savings banks and local commercial banks, provided valuable intermediation services for decades before failing or, more likely, merging. The key to community bank success was governance. Local long-term investors, like the stockholders of the Merchants Bank of New Bedford (later the Merchants National Bank), had both the incentive and the ability to elect effective board directors who carefully chose and monitored bank officers (presidents and cashiers) charged with producing steady dividends.