Tables are in Portable Document Format (PDF).
The following analyses of nationwide summary statistics are based on data compiled by the Federal Financial Institutions Examination Council (FFIEC) for institutions covered by the Community Reinvestment Act.
The Community Reinvestment Act of 1977 is intended to encourage federally insured commercial banks and savings associations to help meet the credit needs of the local communities in which they are chartered. The regulations that implement the CRA were revised in 1995 to make CRA assessments more performance-based and more objective, and to reduce compliance burdens on covered institutions.
The new regulation has three performance tests--lending, investment, and service. The regulation also requires larger commercial banks and savings institutions to collect and report data on their small business, small farm, and community development lending. Institutions subject to the new data reporting requirements include independent institutions with total assets of $250 million or more and institutions of any size if owned by a holding company that has assets of $1 billion or more. The small business and small farm lending data, when coupled with information reported by covered institutions about the geographic locations that comprise their local CRA assessment area(s), make it possible to assess better the performance of these institutions under the new CRA lending test.
For purposes of analysis, the new CRA data pose a number of challenges, complicating assessment of the data. First, lending institutions are asked to report the geographic location of the small business or small farm receiving the loan. However, the borrower may use those funds to support business activities in other locations. Thus, assessment of the data may categorize a loan by the characteristics of the reported geography (typically a census tract) even though the funds are used to support the activities of a firm's offices in a location with different characteristics.
Second, in some cases, businesses and farmers receiving credit did not provide lending institutions with the street addresses of their business or farm, rather only the post office address where correspondence should be sent. These loans were geocoded by the lender to the census tract of the post office rather than to the census tract location of the business. This creates two potential problems: First, the data may show inordinately high numbers of loans in some census tracts with post offices; second, the characteristics of the census tracts with post offices may differ from those where the firm is located.1
Third, while the new CRA data provide information on the extension of credit, they do not provide any indications of local credit demands. Therefore, conclusions drawn from analyses using only these data should be made with caution, as differences in local loan volumes may reflect differences in local demands among other things.
General Description of the 1996 CRA Data
For 1996, 2,078 lenders reported data on small business and small farm lending, including 1,744 commercial banks and 334 savings associations (table 1). Most of the reporting institutions (75 percent) had assets under $1 billion, including 10 percent that had assets under $100 million.
A total of 2,414,805 small business loans, totaling $147 billion, and 216,629 small farm loans, totaling $10.4 billion were reported for 1996. Reported loans include both originations during 1996 and purchases of loans during the year. Unlike mortgage lending, a well-developed secondary market for small business loans does not exist and the new CRA data reflect this market reality. (The one exception is for small business loans guaranteed by the Small Business Administration.) Most reported small business and small farm loans were originations; only about 2 percent of small business loans and less than 1 percent of small farm loans were reported as purchases from another institution.
The vast majority of the reported loans (about 98 percent measured by number of loans) was either originated or purchased by commercial banks. Although a minority in number, larger commercial banks and savings associations (those with assets of $1 billion or more) originated or purchased the majority (60.5 percent) of small business loans. No significant differences between commercial banks and savings associations were observed in this regard, as larger institutions did the majority of small business lending within their institutional categories. The overall pattern differs for small farm loans, where larger institutions accounted for only 42 percent of the loans.
The new CRA data provide information about the size of small business and small farm loans. In the case of small business loans, the maximum loan size reported is $1 million, for small farm loans $500,000. Among all reported loans, the average small business loan was for about $61,000 and the average small farm loan was for about $48,000. For 1996, 87 percent of the small business loans and 88 percent of the small farm loans (measured by number of loans) were for amounts under $100,000 ( table 2). Measured by dollars the distribution differs, as only 29 percent of the small business loans and 44 percent of the small farm loans fell in the under $100,000 loan size category.
The new CRA data include information on how many of the reported loans were extended to businesses or farms with revenues of $1 million or less. Such firms fall within generally accepted definitions of a small business, although many somewhat larger firms also are often categorized as being a small business or small farm. For 1996, 56 percent of the reported small business loans and 88 percent of the small farm loans (measured by number of loans) were extended to firms with revenues of $1 million or less. The data show that, on average, loans to firms with revenues under $1 million are smaller than loans to larger firms. For example, the average small business loan to these small firms is only about $46,000 while the overall average loan amount is $61,000.
The Geographic Distribution of Small Business and Small Farm Lending
The availability of information about the geographic location of businesses and farms receiving credit provides an opportunity to examine regional credit flows and the distribution of small business and small farm lending across areas grouped by their socio-demographic and economic characteristics. Because the new CRA data do not include the lending of all commercial banks and savings associations, the data do not fully represent all small business and small farm lending by these types of institutions. Nonetheless, covered institutions represent a significant portion of such lending.
To examine regional credit flows, reported loans were grouped by Census region. Small business lending varies by region of the country (table 3). The New England region had the smallest share of business loans and the South Atlantic the largest. However, variation in lending across regions closely follows differences in the number of business establishments across regions. For example, New England had 5 percent of the business loans (measured by number or dollar amount of loans) and the region had 5.9 percent of the businesses (table 3, memo item).
The regional variation in small farm lending is more pronounced than in small business lending. The New England region had the smallest share (less than 1 percent) of all small farm lending (measured either by number or dollar amount of loans) and the West North Central region had the largest share (over 30 percent). As with small business loans, though, this regional variation fairly closely tracks differences in the share of farms and the share of farm sales by region.
CRA performance assessments include an analysis of the distribution of small business and small farm loans (of all types) across census tracts grouped into four neighborhood income categories: low, moderate, middle, and upper income.2 Overall, the distribution of the number and the dollar amounts of small business loans across these four income categories generally follows the distribution of population across these groups ( table 4). For example, low-income areas include 4.9 percent of the U.S. population and received 4.6 percent of the number and 5.6 percent of the total dollar amount of newly originated small business loans. 3 Some differences are observed in areas with higher incomes, but the total amount of lending to middle- and upper-income neighborhoods only slightly exceeds their share of the population.
Among small farm loans, about three-quarters of all lending, whether measured in number of loans or in dollars, occurred in middle-income census tracts. Only a very small proportion (less than 1 percent) of reported farm lending occurred in low-income neighborhoods, which, as noted, include only a small proportion of the U.S. population.
Table 5 shows the distribution of small business and small farm loans across census tracts grouped by both income and their degree of urbanization (central city, suburban, rural location). Small business loans are heavily concentrated in central city and suburban areas (about 80 percent of all small business loans), as is the bulk of the U.S. population. In contrast, most small farm loans are in rural areas (74 percent of all small farm loans). In lower-income areas, most newly originated small business loans occur in central city census tracts; in higher-income areas, suburban census tracts have the most small business loans. This income-urbanization pattern is not generally observed for small farm loans, however. Most small farm loans are made in rural areas regardless of area income.
Community Development Lending
In addition to information about small business and small farm lending, institutions covered by the CRA data reporting requirements also disclose the number and dollar amount of their community development lending. For 1996, 32,677 community development loans totaling $17.7 billion were reported (table 6). On average, community development loans ($542,000) are larger than the typical small business loan ($61,000) reported in the CRA data. Fifty-seven percent of the commercial banks reporting CRA data and 46 percent of the savings associations extended community development loans in 1996. Commercial banks extended over 85 percent of all community development loans. Measured by number of loans, large lenders (assets of $1 billion or more) extended the majority (55 percent) of the community development loans. Such lenders tended to make larger loans, as these institutions accounted for 81 percent of the community development lending measured in dollars. Relatively few (2 percent) of the community development loans were extended by affiliates of reporting institutions.
1 The agencies have attempted to minimize the potential distortions created by post office geocoding in future years by clarifying the instructions to reporting institutions to emphasize that, except in unusual circumstances, the street address of the business or farm, not a post office, should be the basis for geocoding. This clarification should be reflected in the 1998 data.
2 For purposes of the regulation a low-income census tract has a median family income that is less than 50 percent of the broader area (either MSA or nonmetropolitan portion of a state) median family income; moderate income 50 percent to less than 80 percent; middle income 80 percent to less than 120 percent; and upper income 120 percent or more.
3 Population and lending activity figures include Puerto Rico.