Does Bank Consolidation Hurt the Small Business Borrower

The recent wave of mergers in the commercial banking sector in the United States has led to tremendous industry consolidation. Some fear that such consolidation will leave the small business borrower with fewer opportunities to obtain bank credit. This study uses regression analysis to empirically determine if consolidation has caused larger banks to abandon relationship loans extended to small businesses over time. If so, this leaves small business borrowers with two distinctly different choices, a low interest rate loan from a large bank for those small business borrowers who qualify or a high interest rate loan from a small bank for those who do not. The results of this study support this theory, and find consolidation has raised small business loan rates at small banks and lowered rates at large banks, ceteris paribus.