Banking consolidation and the availability of credit to small businesses

In this study, we use firm-level data from the 1993 National Survey of Small Business Finances to test the hypothesis that banking consolidation has reduced the availability of credit to small businesses. We find that banks in markets where mergers have occurred are more likely than other banks to deny credit to small business loan applicants. However, this relationship disappears after we control for characteristics of the small business firm and its principal owner, the economic environment of the market where the firm is located, and the financial condition of the prospective lender. Moreover, we find that one set of banks, those in the process of acquiring other banks, are less likely to deny credit to small businesses. These results suggest that consolidation in the banking industry may have enhanced rather than restricted the availability of credit to small businesses. However, the data reflect credit availability during 1991-94, and may not be representative of subsequent credit conditions. Nor does the analysis rule out possible changes in the terms of credit available to small businesses.acquisition; bank; bank merger; credit; merger; relationship; small business; SSBF; takeover

Banking consolidation and the availability of credit to small businesses

In this study, we use firm-level data from the 1993 National Survey of Small Business Finances to test the hypothesis that banking consolidation has reduced the availability of credit to small businesses. We find that banks in markets where mergers have occurred are more likely than other banks to deny credit to small business loan applicants. However, this relationship disappears after we control for characteristics of the small business firm and its principal owner, the economic environment of the market where the firm is located, and the financial condition of the prospective lender. Moreover, we find that one set of banks, those in the process of acquiring other banks, are less likely to deny credit to small businesses. These results suggest that consolidation in the banking industry may have enhanced rather than restricted the availability of credit to small businesses. However, the data reflect credit availability during 1991-94, and may not be representative of subsequent credit conditions. Nor does the analysis rule out possible changes in the terms of credit available to small businesses

Banking consolidation and the availability of credit to small businesses

In this study, we use firm-level data from the 1993 National Survey of Small Business Finances to test the hypothesis that banking consolidation has reduced the availability of credit to small businesses. We find that banks in markets where mergers have occurred are more likely than other banks to deny credit to small business loan applicants. However, this relationship disappears after we control for characteristics of the small business firm and its principal owner, the economic environment of the market where the firm is located, and the financial condition of the prospective lender. Moreover, we find that one set of banks, those in the process of acquiring other banks, are less likely to deny credit to small businesses. These results suggest that consolidation in the banking industry may have enhanced rather than restricted the availability of credit to small businesses. However, the data reflect credit availability during 1991-94, and may not be representative of subsequent credit conditions. Nor does the analysis rule out possible changes in the terms of credit available to small businesses

Bank risk ratings and the pricing of agricultural loans

In this paper, we review the prevalence of the use of risk ratings by commercial banks that participated in the Federal Reserve's Survey of Terms of Bank Lending to Farmers between 1997 and 2002. We find that adoption of risk rating procedures held about steady over the period, with a little less than half the banks on the panel either not using a risk rating system, or reporting the same rating for all their loans in the survey. However, most of these banks were small, and roughly four-fifths of all sample loans carried an informative risk rating. We found that after controlling for the size and performance of the bank and as many nonprice terms of the loan as possible, banks consistently charged higher rates of interest for the farm loans that they characterized as riskier, with an average difference in rates between the most risky and least risky loans of about 1-1/2 percentage points.Agricultural credit ; Risk