Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation

This paper addresses the relationship between the aging process at new and relatively young banks and the tendency of banks to make loans to small businesses. Defining small business loans as C&I loans that are under $1 million in size, we analyze a sample of banks that had assets of less than $500 million in assets for the years 1993-1996 and that were 25 years of age or younger. We find, as have earlier studies, that banks' proclivities for small business lending are negatively related to their age and to their size. We proceed much farther, however, by introducing a number of additional explanatory variables. We find that small business lending is negatively related to the number of a bank's branches, to its recent growth rate, and to a bank's being part of a MBHC. Also, small business lending is positively related to higher concentration rates in urban areas but is negatively related to higher concentration in rural areas. Despite the inclusion of these additional variables, the negative effects of a bank's age on its small business lending persist, albeit with reduced magnitudes. We also examine sub-samples of our data. When only "young" banks (ten years old or less) are considered, the inclusion of the additional variables causes the effects of age to disappear for freestanding (independent and OBHC) banks; and when only MBHC banks are considered, age disappears as a significant influence.