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De Novo Banks and Lending to Small Businesses: An Empirical Analysis

  • Lawrence G. Goldberg
  • Lawrence J. White

Recent widespread consolidation in the banking industry has elicited concern that lending to small businesses will be reduced by the banking industry. The consolidation, though, has stimulated an upsurge in new bank charters. This study compares the lending by de novo banks to small businesses with the lending by similarly sized incumbent banks for years 1987-1994. We find that the portfolios of de novo banks consistently contain a substantially higher percentage of small business loans than do the portfolios of similar incumbents. These results indicate that de novo banks can be part of the solution to the problems that consolidation may create.

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Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-039.

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Date of creation: 28 Jul 1997
Date of revision:
Handle: RePEc:fth:nystfi:98-039
Contact details of provider: Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/

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  1. Mitchell Berlin, 1996. "For better and for worse: three lending relationships," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-12.
  2. Leonard I. Nakamura, 1993. "Recent research in commercial banking: information and lending," Working Papers 93-24, Federal Reserve Bank of Philadelphia.
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  9. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The effects of bank mergers and acquisitions on small business lending," Finance and Economics Discussion Series 1997-28, Board of Governors of the Federal Reserve System (U.S.).
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  12. William R. Keeton, 1995. "Multi-office bank lending to small businesses: some new evidence," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 45-57.
  13. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  14. William R. Keeton, 1996. "Do bank mergers reduce lending to businesses and farmers? New evidence from Tenth District states," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 63-75.
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  17. Mark E. Levonian, 1996. "Explaining differences in farm lending among banks," Economic Review, Federal Reserve Bank of San Francisco, pages 12-22.
  18. Patricia Brislin & Anthony M. Santomero, 1991. "De novo banking in the third district," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 3-12.
  19. Goldberg, Lawrence G, 1976. "Bank Holding Company Acquisitions and Their Impact on Market Shares: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(1), pages 127-30, February.
  20. DeYoung, Robert & Hasan, Iftekhar, 1998. "The performance of de novo commercial banks: A profit efficiency approach," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 565-587, May.
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