ICBA News Release
ICBA Director of Communications
ICBA Chief Economist and Director of Federal Tax Policy
FOR IMMEDIATE RELEASE
Consolidation of Banking Industry Jeopardizes Small Business Lending
New Studies Illustrate Importance of Community Banks
Washington, D.C. (March 31, 2005) - Two new studies raise a genuine policy concern on the impact of growing bank concentration on small business lending. A new study from the Small Business Administration's Office of Advocacy highlights how a growing share of assets concentrated in the largest U.S. banks has resulted in less small business lending. The report found that access to loans by small businesses has been significantly affected by bank consolidation through mergers.
The SBA study, entitled "The Effects of Mergers and Acquisitions on Small Business Lending by Large Banks," focused on the lending activities of the 50 largest bank holding companies in the U.S. The SBA found that as these banks grew larger, they did less small business lending.
"These new findings raise a genuine concern. Policymakers need to recognize the effect of the rapid growth and financial asset concentration in the nation's biggest banks," stated Camden R. Fine, president and CEO of ICBA. "Small businesses are a critical ingredient to the success of our economy and job creation. We simply can't afford to ignore activities that jeopardize their access to capital."
Another study, "On the Uniqueness of Community Banks," just released by the Federal Reserve Bank of Atlanta echoed similar concerns, stating, "Because community banks are associated with small business lending, local community development and direct consumer contact, policymakers have worried whether such banks will be able to survive the consolidation of the banking industry." The study found that, "While all types of lending entail some relational aspects, relationship lending is typically perceived to be the strongest for small business, agriculture customers, and retail customers. Community banks appear to differ in their emphasis on human-aided transactions on the lending and deposit side." The report concluded, "As commercial banks grow in size, they appear to find it more difficult to maintain an effective relationship focus."
"These two studies should sound an alarm for small businesses and policymakers alike to ensure our country's laws and regulations promote a strong and diverse financial system where lending resources are made readily available to small businesses," said Fine.