Report: Even while thousands vanished, local bank branches remained critical for small business lending

From 2012-2018, big banks got bigger, and 8,872 local branches closed. But in most counties, small business lending was still dominated by banks with branches within the community.

Bank branches and the relationships between banking staff and local businesses are a critical link in the availability of credit, a new report found.

The report, from the National Community Reinvestment Coalition (NCRC), firmly established that small business lending is a function of two primary factors: the overall Gross Domestic Product (GDP) of a county and the number of bank branches in operation there. 

Using data collected under the Community Reinvestment Act (CRA) and bank branch location data from the Federal Deposit Insurance Corporation (FDIC) from 2012-2018, NCRC found that large banks with more than $1.25 billion in assets accelerated their dominance of the marketplace, while smaller banks and their branches have closed or been bought up at a high rate. The number of the very largest national banks, those with more than $100 billion in assets, increased from 19 to 30 during the period, while small banks declined from 5,018 to 3,443 institutions. 

In most counties, large bank business lending was still dominated by banks with branches within the community, although credit card and non-local banks increased their market share. 

“It is clear that bank branches are still of critical importance to support small business lending,” said Jesse Van Tol, CEO of NCRC. “Small businesses need the services of a local branch for lending and daily operations, and through these interactions they develop the relationships that help build lending opportunities, much like what happened under the PPP.”

Smaller banks and lenders are not required to collect and report data on their small business lending. This is a clear impediment to this analysis. Regulators, lenders and the public will benefit from the implementation of Section 1071 of the Dodd Frank Act. Until then, the unmet credit needs of the small business market will not be fully understood.

View the full report: https://ncrc.org/relationships-matter-small-business-and-bank-branch-locations

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