Publications & Presentations


The Competitive Environment of Community Banking: Impact on Microenterprise access to Bank Financing

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Currently, community banks hold only 14% of bank assets in the US; nonetheless, they play an important role in the US economy because they continue to provide the majority of funding to small businesses. This study finds that over 83% of bank failures occurred in metropolitan areas despite the distribution of community banks being almost equal at 49.5% rural and 50.5% metropolitan. The higher failure rates or metropolitan community banks provides support for the competition-fragility view that increased competition in banking leads to more bank failures. The nationwide survey in this study indicates that metropolitan community bankers perceive the competitive environment to be more intense and that their marketing capabilities are inferior to the large nationwide and regional banks that they compete against. Community bankers perceive that the merger and acquisition activity will continue and that it is driven by the need to achieve economies of scale in technology and regulatory compliance. Based on previous research that larger banks extend less credit to small businesses, this will further restrict the availability of bank credit to new businesses and existing microenterprises. Given that microenterprises employ the majority of people and contribute to new job creation, there are serious economic implications.