Bank Consolidation and Small Business Lending: The Role of Community Banks

FDIC Working Paper No. 2003-05

46 Pages Posted: 3 Mar 2006

See all articles by Robert B. Avery

Robert B. Avery

Board of Governors of the Federal Reserve System

Katherine Samolyk

Government of the United States of America - Division of Research and Statistics

Date Written: October 2003

Abstract

This paper examines how bank merger and acquisition activity affected small business lending in local U.S. banking markets between 1994 and 2000, focusing particularly on the role that community banks played in determining the ultimate effects of consolidation. During the 1994-1997 period, we find evidence that consolidation activity involving big banks was associated with lower loan growth, whereas community bank consolidations and a greater presence of community banks in the market were associated with higher loan growth. During the 1997-2000 period, consolidation activity was either unrelated to small business loan growth or associated with higher loan growth, suggesting that the dynamics of consolidation activity had changed. In both periods, we find evidence that consolidation presented an opportunity for community banks. Once adjustments are made for reclassifications in the size category of organizations due to consolidation or asset growth, we find that the share of small business lending funded by community banks rose during both study periods - particularly in markets undergoing consolidation.

JEL Classification: L1, L4, G2

Suggested Citation

Avery, Robert B. and Samolyk, Katherine, Bank Consolidation and Small Business Lending: The Role of Community Banks (October 2003). FDIC Working Paper No. 2003-05, Available at SSRN: https://ssrn.com/abstract=886688 or http://dx.doi.org/10.2139/ssrn.886688

Robert B. Avery (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2906 (Phone)
202-452-5295 (Fax)

Katherine Samolyk

Government of the United States of America - Division of Research and Statistics ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
202-898-3655 (Phone)
202-898-7222 (Fax)

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