Bank Consolidation and Small Business Lending: It's Not Just Bank Size that Matters

Journal of Banking and Finance, January 1998

Posted: 23 May 2000

See all articles by Joe Peek

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation

Abstract

Concern with the potential effect of bank mergers on small business lending has stemmed from a belief that larger acquirers may be less willing than their smaller targets to be active in the small business lending market. However, we find that in roughly half the commercial and savings bank mergers of the past three years, the acquirer has a larger portfolio share of small business loans than its target; moreover, the most common acquirer of small banks is another small bank. The empirical results support the hypothesis that acquirers tend to recast the target in their own image, causing small business loan portfolio shares of the consolidated bank to converge toward the pre-merger portfolio share of the acquirer. Since acquirers are almost as likely to have larger as smaller shares of small business loans in their portfolios, compared to their targets, this suggests that not all mergers will shrink small business lending; many will actually increase it.

JEL Classification: G23, G34

Suggested Citation

Peek, Joe and Rosengren, Eric S., Bank Consolidation and Small Business Lending: It's Not Just Bank Size that Matters. Journal of Banking and Finance, January 1998. Available at SSRN: https://ssrn.com/abstract=64748

Joe Peek (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3090 (Phone)
617-973-3219 (Fax)

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