WASHINGTON – Small business lending tends to fall by the wayside after an internal merger at a large bank. This is one of the conclusions for a just-released study from the SBA, The Effects of Mergers and Acquisitions on Small Business Lending at Large Banks. The study looked at the nation's top 50 bank holding companies (BHC) and found that banks that are acquired, but not placed under the more direct control that accompanies a formal merger, may do about the same amount of small business lending as prior to the acquisition. In contrast, the merging of bank charters within the BHC seems more likely to reduce small business lending. When BHCs acquire and then change the ownership of banks-but do not merge them with their other banks, or with each other-small business lending is not heavily impacted. But as BHCs merge bank subsidiaries and otherwise shift assets into their larger banks, their small business lending declines, the study found. The study's authors used annual data for 1997 to 2002, which incorporates data for small business lending during the 2001 national recession and the 2002 recovery. All banks examined had at least $300 million in assets. There were other key findings. Small business lending declined significantly across each of the various dependent variables and loan sizes. Both internal growth and total growth tend to reduce small business lending for each loan size category. Also the more concentrated the assets become in its larger banks, through either internal growth or through mergers of its bank subsidiaries, the less small business lending the BHC does, the study found. "The results suggest that, in general, larger BHCs tend to do less small business lending," said Diana Hancock, Joe Peek, and James Wilcox of KeyPoint Consulting, LLC and authors of the study. "That masks some important distinctions: small business lending can be affected quite differently by the way in which a BHC becomes larger and the extent to which the BHCs consolidate their bank subsidiaries." The authors cite a study that showed small business lending at banks has been a formidable player. Between 1994 and 1999, lending here grew more than 20% while banks' share of total loans declined about 10%. They also note that larger banks increasingly dominate small business lending. For example, during that period the share of small business bank loans under $100,000 held by the largest banks rose and the share held by the smallest banks fell. Mergers and acquisitions have almost always been the death knell for small business lending, according to the study. Citing other research, the authors said more than 6,000 mergers and acquisitions between the late 1970s and early 1990s reduced small business lending. However, they also find that the reductions were almost entirely offset by increases in small business lending by banks that did not merge that operated in the same markets as the merging banks. Still, one reason why small business lending by large banks may not have been much affected by their mergers is that large banks tend to merge with smaller banks, which tend to be more heavily engaged in small business lending, the study found. Another reason might be that financial innovations and changes in technology have "eroded some barriers" to the involvement of larger banks in small business lending. "For example, the increasing use of credit scoring in loan originations, as well as securitization after origination, are reducing screening and monitoring costs and, in turn, reducing the importance of both established lending relationships and physical proximity between borrowers and lenders," the study said. To the extent that large banking organizations adopt the technologies and innovations of credit scoring and the securitization of small business loans more quickly and widely than smaller banks, these large BHCs could garner a larger share of small business lending, the authors said. [email protected]