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Small business credit availability: how important is size of lender?

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  • Joe Peek
  • Eric S. Rosengren

Abstract

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.

Suggested Citation

  • Joe Peek & Eric S. Rosengren, 1995. "Small business credit availability: how important is size of lender?," Working Papers 95-5, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:95-5
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    References listed on IDEAS

    as
    1. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June.
    2. Allen N. Berger & Gregory F. Udell, 1994. "Lines of credit and relationship lending in small firm finance," Proceedings 52, Federal Reserve Bank of Chicago.
    3. Gregory E. Elliehausen & John D. Wolken, 1990. "Banking markets and the use of financial services by small and medium- sized businesses," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 801-817.
    4. Joe Peek & Eric S. Rosengren, 1995. "Banks and the availability of small business loans," Working Papers 95-1, Federal Reserve Bank of Boston.
    5. Cornett, Marcia Millon & Tehranian, Hassan, 1992. "Changes in corporate performance associated with bank acquisitions," Journal of Financial Economics, Elsevier, vol. 31(2), pages 211-234, April.
    6. John H. Boyd & Stanley L. Graham, 1991. "Investigating the banking consolidation trend," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-15.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Bank loans ; New England ; Small business;

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