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Bank consolidation and small business lending: it's not just bank size that matters

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Author Info
Joe Peek
Eric S. Rosengren

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Abstract

Concern with the potential effect of bank mergers on small business lending has stemmed from a belief that larger acquirers may be less willing than their smaller targets to be active in the small business lending market. However, we find that in roughly half the commercial and savings bank mergers of the past three years, the acquirer has a larger portfolio share of small business loans than its target; moreover, the most common acquirer of small banks is another small bank. The empirical results support the hypothesis that acquirers tend to recast the target in their own image, causing small business loan portfolio shares of the consolidated bank to converge toward the pre-merger portfolio share of the acquirer. Since acquirers are almost as likely to have larger as smaller shares of small business loans in their portfolios, compared to their targets, this suggests that not all mergers will shrink small business lending; many will actually increase it.

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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 97-1.

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Date of creation: 1997
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Publication status: Published in Journal of Banking and Finance, vol. 22, nos. 6-8 (August 1998), pp. 799-820.
Handle: RePEc:fip:fedbwp:97-1

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Keywords: Bank mergers ; Small business;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Donald T. Savage, 1993. "Interstate banking: a status report," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 1075-1089.
  2. Leonard I. Nakamura, 1994. "Small borrowers and the survival of the small bank: is mouse bank Mighty or Mickey?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-15. [Downloadable!]
  3. Pilloff, Steven J, 1996. "Performance Changes and Shareholder Wealth Creation Associated with Mergers of Publicly Traded Banking Institutions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 294-310, August. [Downloadable!] (restricted)
  4. Joe Peek & Eric Rosengren, 1995. "The effects of interstate branching on small business lending," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 314-331.
  5. William R. Keeton, 1995. "Multi-office bank lending to small businesses: some new evidence," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 45-57. [Downloadable!]
  6. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July. [Downloadable!] (restricted)
  7. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March. [Downloadable!] (restricted)
  8. Philip E. Strahan & James Weston, 1996. "Small business lending and bank consolidation: is there cause for concern?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Mar. [Downloadable!]
  9. Douglas Robertson, 1995. "Are banks converging to one size?," Working Papers 95-29, Federal Reserve Bank of Philadelphia.
  10. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The Effects of Bank Mergers and Acquisitions on Small Business Lending," New York University, Leonard N. Stern School Finance Department Working Paper Seires 97-1, New York University, Leonard N. Stern School of Business-.
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