At the end of June 1993, 68 percent of all business loans at Eighth District banks were for $1 million or less—the benchmark for a small business loan—according to data recently collected by bank regulatory agencies. About 60 percent of those loans were for $100,000 or less. For U.S. banks of similar size—those with less than $15 billion in average assets—56 percent of business loans were for $1 million or less, and 49 percent of those loans were for $100,000 or less.
"These statistics confirm that small business lending is extremely important to commercial banks, District banks in particular," says Fed economist Michelle A. Clark.
The data also showed that, not surprisingly, the bulk of farm loans made by District and U.S. banks are small (less than $500,000); these loans comprised 96 percent of total agricultural loans at District banks, compared with 90 percent at U.S. peer banks.
These data will be collected annually as part of an effort by Congress to monitor the availability of credit to small commercial and agricultural firms.
While opponents of branch banking claim that branching reduces competition, limits access to services and channels funds from small to large markets, one Fed economist argues that branching can be good news for both consumers and the banking industry.
"Although it appears that unrestricted branching would limit competition in smaller communities, it actually fosters competition by allowing banks to compete with each other on the other guy's turf," says Fed economist David C. Wheelock. "The increased competition ultimately leads to improved access to credit and other banking services."
Bank branching is not only pro-consumer, he says, but also contributes to the safety and soundness of the banking industry.
"A bank with many offices spread over a wide area is less vulnerable to the effects of a local economy gone sour," he says. "With increased diversification, we would expect to see fewer bank failures and less drain on deposit insurance funds."
In the October issue of the St. Louis Fed's Monetary Trends, Wheelock examines the arguments for and against branch banking and looks at its effects in two states—Arizona and Texas—that have liberal branching laws. For a copy of these accounts, call Debbie Dawe at (314) 444-8809.
At a time when economists and policymakers alike are arguing whether the Fed should continue targeting monetary aggregates, the St. Louis Fed debates the issue at its Economic Policy Conference—a two-day forum for academics and economists around the world.
This year's conference, to be held Oct. 21-22, focuses on the study of monetary aggregates—what they are and what they measure. Six papers on the topic will be presented, followed by a panel discussion on the measurement and use of monetary aggregates. The topic is especially popular with central banks worldwide which, like the Fed, adopted such targets in the '70s in response to growing inflation.
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