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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page The Effect of Market Size Structure on Competition: The Case of Small Business Lending
Allen N. Berger, Richard J. Rosen, and Gregory F. Udell

Abstract: Banking industry consolidation has raised concern about the supply of small business credit since large banks generally invest lower proportions of their assets in small business loans. However, we find that the likelihood that a small business borrows from a bank of a given size is roughly proportional to the local market presence of banks of that size, although there are exceptions. Moreover, small business loan interest rates depend more on the size structure of the market than on the size of the bank providing the credit, with markets dominated by large banks generally charging lower prices.

Keywords: Banks, small business, mergers, relationship lending, size structure, loan prices

Full paper (144 KB PDF)

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Last update: January 2, 2002