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The quantity and character of out-of-market small business lending

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  • Elizabeth S. Laderman

Abstract

Most small business lending from banks originates with institutions that have a local branch, but “out-of-market” lending does not. Supporting the view that proximity is conducive to lending, I find that only about 10 percent of small business lending is from banks with no branch in the local market. About half of this appears to be from banks with a branch in the same state, further supporting the role of proximity, while, at the same time, supporting the current regulatory practice of considering out-of-market loans when assessing local competitive conditions. I also find that out-of-market and in-market loans are of similar average size and are about equally likely to be secured by commercial real estate.

Suggested Citation

  • Elizabeth S. Laderman, 2008. "The quantity and character of out-of-market small business lending," Economic Review, Federal Reserve Bank of San Francisco, pages 31-39.
  • Handle: RePEc:fip:fedfer:y:2008:p:31-39
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    File URL: http://www.frbsf.org/economic-research/publications/economic-review/2008/er31-39.pdf
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    References listed on IDEAS

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    1. Jalal Akhavein & W. Scott Frame & Lawrence J. White, 2005. "The Diffusion of Financial Innovations: An Examination of the Adoption of Small Business Credit Scoring by Large Banking Organizations," The Journal of Business, University of Chicago Press, vol. 78(2), pages 577-596, March.
    2. Frame, W Scott & Srinivasan, Aruna & Woosley, Lynn, 2001. "The Effect of Credit Scoring on Small-Business Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 813-825, August.
    3. Kenneth P. Brevoort & Timothy H. Hannan, 2004. "Commercial lending and distance: evidence from Community Reinvestment Act data," Finance and Economics Discussion Series 2004-24, Board of Governors of the Federal Reserve System (U.S.).
    4. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
    5. W. Scott Frame & Lynn Woosley, 2004. "Credit Scoring and the Availability of Small Business Credit in Low- and Moderate-Income Areas," The Financial Review, Eastern Finance Association, vol. 39(1), pages 35-54, February.
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    Cited by:

    1. Kandrac, John, 2014. "Bank Failure, Relationship Lending, and Local Economic Performance," Finance and Economics Discussion Series 2014-41, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    Loans ; Bank loans ; Small business - Finance;

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