Legal forms and regulatory responses: a comparative analysis of S and C corporation community banks

Abstract This study investigates the differential responses of Subchapter S and C corporation banks within the U.S. community banking sector to significant policy changes following the 2007–2008 financial crisis. Using bank-level data from 2003 to 2019 and employing a difference-in-differences analysis, we explore how legal forms influence banks’ yields on earning assets and funding costs. Our findings reveal that S banks, due to their unique tax status and capital access limitations, exhibited more pronounced reductions in asset yields and increased funding costs compared to C banks.