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The Effect of Bank Consolidation on Small Business Lending in the US

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Although at macroeconomic level consolidation has been influenced by technology, deregulation, macroeconomic events, and other environmental factors; microeconomic factors that are largely responsible for the consolidation trend. That is a bank decides to consolidate charters, o merge with or acquire another firm reflects management’ s chosen strategy in the preservation of company value. It can be part of a purely defensive strategy based on the self-serving motives of managers (Bliss and Rosen 2001 and Ryan 1999). Implied by Shull and Hanweck (2001), Penas and Unal (2004), is a desire to obtain “ too-big-to-fail” status for competitive advantages and government support.

Studies by Amel et al (2002) of 6,000 recent U. S. bank M / A describe the benefit of consolidation in the financial sector applies to a relatively small segment, and little evidence points out that mergers result in economies of scale or that managerial efficiency is achieved. Discernment on mergers or acquisitions presumes increased efficiency on the average cost of transaction contracts and the advancement of managerial capacity as a result of an increased range of products and geographical reach. On the other hand and equally, the extent of exploitable scale and scope economics is raised while improvements seen of management in complex institutions could be elusive.

The findings suggest that the gain in efficiency attributed to the exploitation of scale economies diminish once a certain size or scale above some threshold. Either managing large institutions prove difficult or the geographical coverage increases in tandem to the same amount of conflict. At the same time, there also is an indication that banks operating in concentrated markets are typically less efficient. Specifically to bank mergers, the lag in the company advancement reflects the difficulty in the lengthy integration process which includes refocusing lending policies, rationalizing branches, streamlining systems and operations and people reorientation of brands and cultural adaptation.

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