Magazine article American Banker

Warning: More Lenders after Your Small-Business Clients

Magazine article American Banker

Warning: More Lenders after Your Small-Business Clients

Article excerpt

ead between the lines of the latest issue of the Federal Reserve Bank of Atlanta's Financial Update and you will find good news for small- business borrowers but a warning for community bankers.

The Atlanta Fed has revamped this publication to make it more readable and useful to its subscribers-a radically different approach than that taken by some other regional Fed publications.

Some of these periodicals devote more and more space to academic articles that let the Fed banks' highly trained economists report on the deep research they are doing. And though other academics may find these highly quantitative articles interesting and useful, I doubt most bankers can understand them.

But when the regional offices concentrate their research on serving their members, some of their results are truly useful and memorable.

I still remember a Kansas City Fed study published over 30 years ago that explained why over half the banks in its region did not take advantage of the tax benefits then available by selling bonds whose price had been hurt by rising interest rates.

Why didn't they sell them? The K.C. Fed explained that the CEOs couldn't get the boards to understand that when interest rates rise, bond prices fall. So it was easier to do nothing.

But "Bank Consolidation Affects Lending in Southeastern Rural Markets" in the Atlanta Fed's July-September Financial Update is the type of article that Fed banks should be publishing.

The Fed was testing the often-presented thesis that consolidation in banking is a dangerous development for small businesses.

As banks have merged and been acquired, fewer and fewer institutions are left to serve each community, meaning small business has fewer opportunities to be served.

But this article shows that though there are fewer institutions accepting deposits in many of the communities in the Atlanta Fed's six- state region, Community Reinvestment Act small-business loan data showed quite different conclusions on competition. …

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