from the Federal Reserve Bank of Philadelphia
There have been increasing concerns about the declining number of community banks and that the acquisitions of community banks by larger banks might result in significant reductions in small business lending (SBL) and disrupt relationship lending. It was found that community banks that were merged during the financial crisis period were mostly in poor financial condition and had been rated as unsatisfactory by their regulators on all risk aspects.
It was also found that the ratio of SBL lending to assets has declined (from 2001 to 2012) for all bank size groups, including community banks. The overall amount of SBL lending tends to increase when the acquirer is a large bank. Our results indicate that mergers involving community bank targets so far have enhanced the overall safety and soundness of the overall banking system and that community bank targets are willing to accept a smaller merger premium (or even a discount) to become a part of a large banking organization. Overall, the decline in the number of community banks during this period does not appear to have adversely impacted SBL lending, and larger bank acquirers have tended to step in and play a larger role in SBL lending.