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European Finance Review 2001 5(1-2):115-139; doi:10.1023/A:1012776427175
© 2001 by European Finance Association
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Right arrow G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Right arrow G28 - Government Policy and Regulation
Right arrow G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Right arrow E58 - Central Banks and Their Policies
Right arrow L89 - Other
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The Effects of Dynamic Changes in Bank Competition on the Supply of Small Business Credit*

Allen N. Berger**, Lawrence G. Goldberg and Lawrence J. White

Board of Governors of the Federal Reserve System Washington, DC 20551, U.S.A Wharton Financial Institutions Center Philadelphia, PA 19104 U.S.A
Department of Finance, University of Miami Coral Gables, FL 33124, U.S.A
Stern School of Business, New York University New York, NY 10012-1126, U.S.A

**Please address correspondence to Allen N. Berger, Mail Stop 153, Federal Reserve Board, 20th and C Sts. NW, Washington, DC 20551, Phone: 202-452-2903, Fax: 202-452-5295, or E-mail: aberger{at}frb.gov

We study the effects of structural changes in banking markets on the supply of credit to small businesses. Specifically, we examine whether bank mergers and acquisitions (M&As) and entry have "external" effects on small business loans by other banks in the same local markets. The results suggest modest positive external effects from these dynamic changes in competition, except that large banks may reduce small business lending in reaction to entry. We confirm bank size and age as important determinants of this lending, and show that the measured age effect does not appear to be driven by local market M&A activity. JEL classification: G21, G28, G34, E58, L89.

Key Words: bank • mergers • small business


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