INTERSTATE BANKING, BANK CONSOLIDATION, AND BANK LENDING TO SMALL BUSINESS

Proponents and critics of interstate banking argue over the implications of nationwide banking for bank lending to small business. This study explores the patterns of (1) bank consolidation at the national level and (2) the share of domestic-bank commercial lending extended to small firms, specifically, small manufacturing firms, over the period 1976-90. The evidence indicates that despite the trend toward fewer banking organizations and increased aggregate bank concentration due largely to cross-state expansion by superregional banking organizations, no significant down-trend is observed in the share of domestic-bank credit extended to small manufacturing firms. Nor is there any discernible downtrend in banks' share of borrowing by small manufacturing firms. These results are consistent with the thesis that banking industry consolidation has not led to a reduction in the supply of bank credit to small firms, at least within the manufacturing sector.