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Community banks as small business lenders: the tough road ahead

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  • O. Emre Ergungor

Abstract

This paper investigates the performance of community banks as small business (relationship) lenders. Theory suggests that competition reduces the benefits of bank–borrower relationships, making small business loans more risky and less profitable. In support of this theory, the evidence indicates that community banks’ performance deteriorates with increasing small business lending. Policies that encourage community banks to engage in more aggressive small business lending may lessen the soundness of these institutions.

Suggested Citation

  • O. Emre Ergungor, 2002. "Community banks as small business lenders: the tough road ahead," Working Paper 0203, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:0203
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    References listed on IDEAS

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    Cited by:

    1. Jonathan Scott, 2004. "Small Business and the Value of Community Financial Institutions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(2), pages 207-230, April.
    2. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.

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    Keywords

    Bank loans ; Small business;

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