Community Banks vs. Non-Community Banks: Where is the Advantage in Local Small Business Funding?

Recent literature questions the relative advantage of community banks vs. non-community banks in small business funding. Using the Federal Deposit Insurance Corporation’s definition of a community bank, the study re-examines the role of community banks in providing funding to small businesses using...

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Bibliographic Details
Published in:Atlantic economic journal 2020-06, Vol.48 (2), p.161-174
Main Authors: Nguyen, Nguyen T. H., Barth, James R.
Format: Article
Language:English
Subjects:
Advantages
Banking
Community
Community banks
Counties
Economics
Economics and Finance
Funding
Insurance
International Economics
Loans
Macroeconomics/Monetary Economics//Financial Economics
Metropolitan areas
Microeconomics
Public Finance
Public policy
Small business
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Summary:Recent literature questions the relative advantage of community banks vs. non-community banks in small business funding. Using the Federal Deposit Insurance Corporation’s definition of a community bank, the study re-examines the role of community banks in providing funding to small businesses using the Community Reinvestment Act (CRA) small business lending data over the period 2003 to 2016. The empirical results indicate that community banks are still providing 30 percent more small business funding than non-community banks, especially after the Great Recession. This role is even more important in those counties in non-metropolitan areas. In addition, the results indicate that in counties where community banks do not have offices, they provide 48 percent fewer loans compared to non-community banks in counties where they do not have offices, which suggests community banks still use physical offices to maintain their relationship lending advantage. Clearly, from a public policy standpoint, the results support the view that community banks are important because they continue to provide valuable services to small business firms throughout the country.
ISSN:0197-4254
1573-9678
DOI:10.1007/s11293-020-09671-5