The recent relaxation of restrictions on interstate banking and branching, as well as the likely relaxation of Glass-Steagall restrictions, should encourage significant consolidation in the banking industry. Larger lenders, diversified across regions and products, will undoubtedly be less susceptible to adverse economic shocks that have buffeted the banking industry over the past decade. However, as small banks with a small business loan emphasis are absorbed into larger, more diversified lenders, which tend to focus much less on small business lending, credit availability to bank-dependent small business borrowers should be a major public policy concern. In New England, the evidence indicates that many large acquirers have chosen not to maintain the small business loan portfolios of their smaller target banks. This reduction in small business lending as a result of acquisitions indicates that many banks have little interest in maintaining the historical lending relationships fostered by the small target banks. As consolidation reduces the number of small banks that focus on small business loans, some niches will be created that can be served by de novo entry, although the evidence suggests that de novo entry is unlikely to quickly fill any major voids in small business lending.
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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number
95-5.
Length: Date of creation: 1995 Date of revision: Publication status: Published in Universal Banking Financial System Design Reconsidered (A. Saunders and I. Walter, eds.) 628-55 (1996). Handle: RePEc:fip:fedbwp:95-5
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