The Relationship between Local Community Banking and Small Business Lending
The Federal Reserve Bank of Philadelphia has recently published a working paper on the importance of local community banks to small business lending.
The paper looks at the effect that a reduction in community banking can have on lending to small business.
The authors examined this issue in the context of mergers that involved community banks and the effects those mergers had on small business lending. Among the findings, local small business lending “declined significantly” in counties where only only the acquired institution operated prior to the merger, relative to counties where the acquiring bank had operations before the merger.
In reaching this conclusion the authors controlled for the general SBL market and local economic trends.
The authors call their findings “consistent” with an argument that after such mergers small business funds have been diverted to the markets of the acquiring institution. They say they have found “even stronger evidence” during and following the financial crisis that SML was directed away from the markets of acquired community banks.
Nevertheless, their overall finding is that local community banks still are important players in small business lending.
To read the working paper, visit https://philadelphiafed.org/research-and-data/publications/working-papers.
The authors of the working paper are Julapa Jagtiani and Raman Quinn Maingi, of the Bank.
To contact the authors directly, email julep.jagtiani@phil.frb.org
The Federal Reserve Bank of Philadelphia has recently published a working paper on the importance of local community banks to small business lending.
The paper looks at the effect that a reduction in community banking can have on lending to small business.
The authors examined this issue in the context of mergers that involved community banks and the effects those mergers had on small business lending. Among the findings, local small business lending “declined significantly” in counties where only only the acquired institution operated prior to the merger, relative to counties where the acquiring bank had operations before the merger.
In reaching this conclusion the authors controlled for the general SBL market and local economic trends.
The authors call their findings “consistent” with an argument that after such mergers small business funds have been diverted to the markets of the acquiring institution. They say they have found “even stronger evidence” during and following the financial crisis that SML was directed away from the markets of acquired community banks.
Nevertheless, their overall finding is that local community banks still are important players in small business lending.
To read the working paper, visit https://philadelphiafed.org/research-and-data/publications/working-papers.
The authors of the working paper are Julapa Jagtiani and Raman Quinn Maingi, of the Bank.
To contact the authors directly, email julep.jagtiani@phil.frb.org