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The impact of banks' expanded securities powers on small‐business lending

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  • David P. Ely
  • Kenneth J. Robinson

Abstract

The Gramm–Leach–Bliley Act (GLB) repealed many of the Glass–Steagall restrictions separating commercial and investment banking. We explore whether the ability of commercial banking organizations to conduct securities underwriting has lead to greater small‐business lending at banks with securities affiliates. We hypothesize that this effect on small‐business lending might emerge from greater incentives to engage in relationship lending. Our test results are inconsistent with this hypothesis. Banks with a securities affiliate and with less than $1 billion in assets record lower portfolio proportions of small‐business lending than banks without a securities affiliate. For larger banks, the differences between small‐business lending proportions at banks with and without a securities affiliate are not statistically different when considering the smaller loan categories. Large banks with securities affiliates, though, record significantly lower portfolio proportions of both the largest category of small‐business loans and total small‐business loans.

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  • David P. Ely & Kenneth J. Robinson, 2004. "The impact of banks' expanded securities powers on small‐business lending," Review of Financial Economics, John Wiley & Sons, vol. 13(1-2), pages 79-102.
    • Handle: RePEc:wly:revfec:v:13:y:2004:i:1-2:p:79-102
    DOI: 10.1016/j.rfe.2003.07.001
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    1. Kenneth A. Carow & Edward J. Kane & Rajesh P. Narayanan, 2005. "Winners and Losers from Enacting the Financial Modernization Statute," NBER Working Papers 11256, National Bureau of Economic Research, Inc.
    2. Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 87-110, December.
    3. Lili Xie, 2007. "Universal Banking, Conflicts of Interest and Firm Growth," Working Papers 200703, Ball State University, Department of Economics, revised Jul 2007.

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