Multi-office bank lending to small businesses: some new evidence

In a long-awaited move, Congress enacted legislation last fall authorizing full interstate banking. While most states had already acted to allow some form of entry by outside holding companies, the new law was expected to hasten the spread of large multi-office banking organizations. Most analysts believe the change will benefit the public by increasing competition, improving services to depositors, and reducing banks' vulnerability to local downturns. Concern has been voiced, however, that the benefits of multi-office banking may be achieved at the expense of small businesses. Some analysts worry that large multi-office banks will be less able or less willing to lend to small businesses than the smaller banks they replace.> Keeton investigates the relationship between multi-office banking and small business lending using new information on small business loans in Tenth District states. Data for mid-1994 support the view that further growth in multi-office banking may impose short-run costs on some small businesses. He cautions, though, against concluding that multi-office banking should be curtailed. Instead, regulators should continue to ensure that local banking markets remain competitive, so other banks can step in and fill any gaps in the legitimate credit needs of small businesses.