Effects of Small Business Lending on Bank Profits and Risk

摘要

Drawing on data called from the 'call reports' that banks file with federalregulators, this study compares the profitability of more active small business lenders to that of less active banks. The analysis shows that banks earn higher profit rates on small business loans than other assets on average. These higher-than-average rates of return are earned by increasing bank risk, including capital risk, credit risk, liquidity risk, and funding risk. Importantly, multiple regression analyses indicate that small business loans do not affect bank profit after adjusting for these and other risk factors.