Bank Consolidation and Small Business Lending within Local Markets
April 2003
Working Paper 2003-02
Katherine Samolyk
Division of Insurance and Research
Federal Deposit Insurance Corporation
Washington, D.C. 20429
202-898-3655
ksamolyk@fdic.gov
Christopher A. Richardson
U.S. Department of Justice
Civil Rights Division
Washington, D.C.
202-305-2959
christopher.richardson@usdoj.gov
The views expressed here are those of the authors and do not necessarily reflect those of the Federal
Deposit Insurance Corporation or the Department of Justice. An earlier version of this paper was
presented at the Federal Reserve System Conference on Changing Financial Markets and Community
Development. The authors would like to thank conference participants James Marino and John
O’Keefe for their comments. We also thank Ross Dierdorff and Brian Deitch for assistance with the
CRA and census databases, Lynne Montgomery for her editing and Sarah Belanger for her cheerfully
putting together our many tables.
April 2003
Working Paper 2003-02
Katherine Samolyk
Division of Insurance and Research
Federal Deposit Insurance Corporation
Washington, D.C. 20429
202-898-3655
ksamolyk@fdic.gov
Christopher A. Richardson
U.S. Department of Justice
Civil Rights Division
Washington, D.C.
202-305-2959
christopher.richardson@usdoj.gov
The views expressed here are those of the authors and do not necessarily reflect those of the Federal
Deposit Insurance Corporation or the Department of Justice. An earlier version of this paper was
presented at the Federal Reserve System Conference on Changing Financial Markets and Community
Development. The authors would like to thank conference participants James Marino and John
O’Keefe for their comments. We also thank Ross Dierdorff and Brian Deitch for assistance with the
CRA and census databases, Lynne Montgomery for her editing and Sarah Belanger for her cheerfully
putting together our many tables.
Bank Consolidation and Small Business Lending within Local Markets
Katherine Samolyk and Christopher Richardson
Abstract
This paper uses the relatively new CRA small business loan data to examine how bank
consolidation has been related to small business lending within a bank’s local community—particularly
to borrowers having more modest economic prospects, such as very small businesses or those located
in low- and moderate-income areas. The results of multivariate tests indicate that during the late 1990s,
banks experiencing merger activity—including banks that did not themselves merge but were part of
active holding companies—had systematically lower small business loan growth than inactive banks.
But, the effects appear to reflect a general decline in small business lending rather than a shift away from
lending to lower-income areas or to very small businesses. At the local level, merger-related effects are
more pronounced when the merger activity increases the local market share of the surviving bank or its
parent holding company. Thus, our results indicate that, at least in terms of the quantity of credit, the
effects of bank consolidation do not appear to fall disproportionately on the businesses having more
modest prospects. On the other hand, the market-level analysis indicates that standard antitrust
concerns about the provision of local banking services still seem to apply in small business credit
markets.
JEL Classifications: G21, G28, G34
Keywords: Small business; Lending; Community Reinvestment Act; Bank mergers
2
Katherine Samolyk and Christopher Richardson
Abstract
This paper uses the relatively new CRA small business loan data to examine how bank
consolidation has been related to small business lending within a bank’s local community—particularly
to borrowers having more modest economic prospects, such as very small businesses or those located
in low- and moderate-income areas. The results of multivariate tests indicate that during the late 1990s,
banks experiencing merger activity—including banks that did not themselves merge but were part of
active holding companies—had systematically lower small business loan growth than inactive banks.
But, the effects appear to reflect a general decline in small business lending rather than a shift away from
lending to lower-income areas or to very small businesses. At the local level, merger-related effects are
more pronounced when the merger activity increases the local market share of the surviving bank or its
parent holding company. Thus, our results indicate that, at least in terms of the quantity of credit, the
effects of bank consolidation do not appear to fall disproportionately on the businesses having more
modest prospects. On the other hand, the market-level analysis indicates that standard antitrust
concerns about the provision of local banking services still seem to apply in small business credit
markets.
JEL Classifications: G21, G28, G34
Keywords: Small business; Lending; Community Reinvestment Act; Bank mergers
2