Bank Consolidations and Deregulation Changes Small Business Lending Landscape

The SBA Office of Advocacy has released a study that indicates that bank deregulation and the expansive use of bank holding companies (BHCs) has changed the lending market for small businesses (the report is entitled "The Effects of Mergers and Acquisitions on Small Business Lending by Large Banks").

The study shows that as BHCs grow in size their percentage of small business loans (as compared to its total business loans) decreases. The study also indicates that the organizational form of the BHC has an effect on its small business lending. When a BHC acquires banks but chooses not to merge the newly acquired bank into other subsidiary banks then the acquired bank's small business lending is little effected. But, if two subsidiary banks are merged to create one large subsidiary bank, then the large subsidiary bank's small business lending declines.

This study may provide an interesting glimpse into future small business lending problems. Clearly, the trend in the banking industry over the past couple of decades has been one of consolidation and deregulation. If this trend continues, this study may foreshadow a market in which fewer lenders are willing to serve small business customers.

Click here for the full report. Click here for the report summary.