Magazine article American Banker

Community Bank Small-Business Loans Are Undercounted: FDIC Survey

Magazine article American Banker

Community Bank Small-Business Loans Are Undercounted: FDIC Survey

Article excerpt

Byline: Ian McKendry

WASHINGTON -- Small banks are lending to small businesses much more than previously thought, according to a preview released Wednesday of an upcoming Federal Deposit Insurance Corp. survey.

After surveying more than 1,000 banks with less than $10 billion in assets and conducting one-and-one follow-up discussions with 51 institutions, the FDIC concluded that small-business lending by those institutions was actually undercounted by at least $38 billion in the fourth quarter of 2015.

"Relying on call report proxy understates small business lending by small banks," the agency said in a synopsis of its first-ever small-business lending survey. The agency plans to release the full report on the survey sometime next year.

Commercial and industrial loans of less than $1 million are typically a good proxy for calculating small-business loans made by small banks. In the fourth quarter of 2015, those C&I loans totaled $118 billion for banks with less than $10 billion in assets.

But after conducting the survey in 2016 and 2017 with the help of the Census Bureau, the FDIC found that many loans secured by one- to four-family residential properties and made by small banks are also often utilized by small businesses, which added roughly $16 billion to the total.

The FDIC data suggests small-business loan totals should be revised also because small banks said they often make loans above the normal threshold of $1 million to businesses with less than $1 million in annual revenue, which many would consider a small business. In fact, banks with assets of $1 billion to $10 billion said 20% of all their C&I loans that were greater than $1 million were to small businesses.

Using that estimate, the FDIC found that banks with $1 billion to $10 billion in assets made $21 billion in loans of more than $1 million to small businesses in the fourth quarter of 2015. …

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