Interstate Banking and Small Business Finance: Implications from Available Evidence

Abstract

The prospect of full interstate banking in the near future raises questions about the supply and cost of bank credit for small business firms under such a regime. This study explores this issue, drawing on the evidence of prior research. Specifically, the focus is on three questions: (1) the likely commitment of large, nationwide banks to the small business sector; (2) the implications of interstate banking for the viability of small, independent banks; and (3) the effect of nationwide banking on the overall level of local bank competition. The available evidence indicates little reason to expect the supply or cost of small business credit to be affected adversely by interstate banking. If anything, nationwide banking should increase the supply, and possibly lower the cost, of bank financing for small firms.