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

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  • Joe Peek
  • Eric S. Rosengren

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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Bibliographic Info

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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  1. 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.
  2. 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, vol. 2(Mar).
  3. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The effects of bank mergers and acquisitions on small business lending," Finance and Economics Discussion Series 1997-28, Board of Governors of the Federal Reserve System (U.S.).
  4. 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.
  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.
  6. 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.
  7. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
  8. 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.
  9. Douglas Robertson, 1995. "Are banks converging to one size?," Working Papers 95-29, Federal Reserve Bank of Philadelphia.
  10. Keeton, William R., 1995. "Multi-Office Bank Lending To Small Businesses: Some New Evidence," Proceedings: 1995 Regional Committee NC-207, October 16-17, 1995, Kansas City, Missouri 131493, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  11. Joe Peek & Eric Rosengren, 1995. "The effects of interstate branching on small business lending," Proceedings 462, Federal Reserve Bank of Chicago.
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