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The following analysis of nationwide summary statistics is based on data compiled by the Federal Financial Institutions Examination Council (FFIEC) for institutions reporting under Community Reinvestment Act (CRA) regulations.
The CRA 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 CRA regulations require larger commercial banks and savings associations to report data on their small business, small farm, and community development lending. The institutions subject to these requirements generally 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. Analysis of Call Report and Thrift Financial Report data on small business and small farm loans outstanding indicates that lenders reporting under the CRA account for about 84 percent of the number of small business loans and 31 percent of the number of small farm loans extended by all commercial banks and savings associations. The small business and small farm lending data, when coupled with information reported about the geographic locations that constitute each reporting institution's local CRA assessment area(s), make it possible to better evaluate the performance of reporting institutions under the CRA lending test.1
The small business and small farm lending data reported under the CRA regulations differ from the data reported on home mortgage lending under the Home Mortgage Disclosure Act (HMDA) in several respects. Unlike the HMDA data, the CRA data include information only on loans originated or purchased, not on applications that are turned down or are withdrawn by the applicant. In addition, the CRA data do not include information about applicant income, sex, or racial or ethnic background, although the CRA data do indicate whether a loan is extended to a borrower with annual revenues of $1 million or less. Finally, the CRA data are not reported application-by-application, as HMDA data are, but rather are aggregated into three loan-size categories and then reported at the census tract level.
CRA data furnish a valuable tool for many different types of analyses. At the same time, the analysis of CRA data poses challenges. For example, while CRA data provide information on extensions of credit in a geographic area, they do not indicate the amount or nature of the overall demand for credit there. Thus, caution should be used in drawing conclusions from analyses using only CRA data, as differences in local loan volume may reflect differences in local demand, among other things.
General Description of the 2000 CRA Data
For the year 2000, a total of 1,941 lenders reported data on small business and small farm lending in 2000, including 1,471 commercial banks and 470 savings associations (table 1). Most of the reporting institutions (75 percent) had assets under $1 billion, including 17 percent that had assets under $250 million (derived from table 3). (As indicated above, independent institutions with assets under $250 million generally are not required to report these data.) Compared with 1999, the number of reporters has changed very little. The number of lenders extending community development loans also changed very little, from 1,104 in 1999 to 1,117 in 2000 (table 5).
A total of approximately 5 million small business loans, totaling about $179 billion, and about 204,000 small farm loans, totaling approximately $12 billion, were reported for 2000. Reported loans include both originations and purchases of loans. Unlike home mortgage lending, a well-developed secondary market for small business loans does not exist, and the CRA data reflect this.2 Most reported small business and small farm loans were originations; less than 1 percent of the loans of either type were reported as purchases from another institution (derived from table 2).
The CRA data provide information about the size of small business and small farm loans. For small business loans, the maximum loan size reported is $1 million; for small farm loans the maximum is $500,000. In 2000, the average small business loan was $35,000, a decrease of 33 percent from the average loan in 1999 (derived from table 2). The average small farm loan was little changed from 1999 to 2000, ($55,800 and $57,000, respectively).
Measured by number of loans, 93 percent of the small business loans and 85 percent01/15/2009 10:56 AM(table 2). Measured by dollars, the distribution differs: 35 percent of the small business loans and 40 percent of the small farm loans fell in the under-$100,000 loan size category.
Most of the reported small business loans (about 89 percent measured by number of loans) was either originated or purchased by commercial banks (data not shown). This preponderance of commercial banks in small business lending is consistent with data provided by other sources, including the Federal Reserve's 1987, 1993, and 1998 National Surveys of Small Business Finances, which show that commercial banks are the predominant source of credit for small businesses.3
Larger commercial banks and savings associations (those with assets of $1 billion or more) originated or purchased about 80 percent of the reported small business loans (table 3). These larger banks and savings associations, however, represent a minority of the number of institutions reporting such 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 (data not shown). The overall pattern differs for small farm loans, where larger institutions accounted for only about half of the loans. These patterns are little changed from previous years.
Significant Changes in Reported Small Business Lending
The data on small business lending for 2000 differ from data reported for 1999 in several respects. First, the number of reported small business loans increased in 2000 by 55 percent over the number of such loans reported for 1999, while the dollar amount of these loans increased 2.6 percent (derived from table 1). Most of the increase in the number of small business loans occurred in loans of $100,000 or less.
The increase in the number of small business loans from 1999 to 2000 can be attributed in large part to credit card lending by institutions required to report data under CRA for the first time; they account for 1.25 million loans made in 2000. Increased credit card lending by previously covered institutions that specialize in credit card lending account for another 380,000 loans. Previously covered institutions that do not specialize in credit card lending account for at least 225,000 of the additional loans.
Increased reporting of credit card loans is consistent with the modest change in the total dollar amount of small business loans from 1999 to 2000. Credit card loans are significantly smaller on average than all other types of small-business lending (estimated to be about $8,000 and $35,000 respectively) (data not shown).
The second major change observed in the 2000 data is that the proportion of small business loans made to borrowers with annual revenues of $1million or less4 declined from 60 percent in 1999 to 42 percent in 2000. This decrease also can be traced in part to increased reporting of credit card lending to small businesses. From 1999 to 2000, credit card lending to businesses with annual revenues greater than $1 million increased significantly over 1999 (data not shown). Analysis indicates that these changes may be due, in part, to a change in the underwriting standards of a large institution that specializes in credit card lending. This institution was unable to identify the size of the borrower for some of its loans. Thus, the lender did not indicate that these loans were extended to borrowers with gross annual revenues greater than $1 million, consistent with the CRA regulations.
Third, in 2000 the average size of small business loans declined from 1999 by 33 percent. And in 2000 small business loans to borrowers with annual revenues of $1 million or less were on average larger ($39,000) than loans to borrowers with annual revenues exceeding $1 million ($33,000) (derived from table 2). This is a reversal from the pattern found in the CRA data in previous years. For instance, in 1999 the average small business loan to smaller firms was about $42,800, while the average loan to larger firms was about $68,000. These changes in the average size of small business loans-a decrease in the average loan size generally, and in the average size of loans to borrowers with revenues greater than $1 million--are consistent with the increased reporting of credit card loans.
If the 1999 and 2000 CRA data on small business lending were adjusted for the two factors discussed above-by omitting the data reported by institutions specializing in credit cards, as well as data reported by newly covered institutions-the increase in small business lending from 1999 to 2000 is less notable than the non-adjusted data would suggest (data not shown). The adjusted data show that from 1999 to 2000, the number of small business loans increased by 8 percent, and that the dollar amount of these loans decreased by roughly the same percentage.
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 the distribution of small business and small farm lending across areas grouped by their socio-demographic and economic characteristics. Because the 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, reporting institutions account for a significant portion of such lending, particularly to small businesses.
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.5 Overall, the distribution of the number and the dollar amounts of small business loans across these categories parallels the distribution of population and businesses across these four income groups (tables 4.1 and 4.2). For example, low-income areas include about 5 percent of the population and about 5 percent of the businesses, and received approximately 4 percent of the number and about 5 percent of the total dollar amount of newly originated small business loans.6
The proportion of small business loans extending in low- moderate-, middle-, and upper-income areas remains the same in 2000 as it was in 1999, measured both by the share of the total number or the dollar amount of all reported small business loans (tables 4.1 and 4.2). In 2000, the share of the number of reported small business loans in low-income areas was approximately 4 percent; in moderate-income areas, about 15 percent; in middle-income areas, roughly 50 percent; and, in upper-income areas, approximately 31 percent. Measured by the share of the dollar amount of reported small business loans in 2000, the distribution is as follows: low-income areas, about 5 percent; moderate-income areas, about 15 percent; middle-income areas, approximately 48 percent; and, upper-income areas, about 36 percent (table 1).
When comparing the distribution of small business lending across central city, suburban, and rural areas, small business loans are heavily concentrated in U.S. central city and suburban areas, as are the bulk of the U.S. population and the number of businesses (tables 4.1 and 4.2). In lower-income areas, most small business loans (about 90 percent) occur in central city census tracts; in higher-income areas, small business loans are most frequently made in suburban areas. This income-urbanization pattern is not generally observed for small farm loans. Most small farm loans are made in rural areas regardless of income (tables 4.3 and 4.4).
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 loans. A community development loan is not otherwise reported under CRA as a small business, small farm, or home mortgage loan (except for multifamily dwelling loans reported under HMDA). For 2000, 24,174 community development loans totaling about $20 billion were reported (table 5). While the number of loans shows little change from 1999 to 2000, the dollar amount of community development loans reflects an increase of 15 percent. About 60 percent of the 1,941 reporting institutions reported community development loans in 2000, a proportion that is unchanged from 1999. Lenders with assets greater than $250 million extended the bulk of community development loans, when measured both in the number of loans and dollar terms.
1. The regulations that implement the CRA provide three performance tests for large retail institutions: a lending test, an investment test, and a service test.
2. The one exception is for small business loans guaranteed by the Small Business Administration. See "Report to the Congress on Markets for Small Business and Commercial Mortgage Related Securities," the Board of Governors of the Federal Reserve System and the U.S. Securities and Exchange Commission (September 1996).
3. See Rebel A. Cole, John D. Wolken, and R. Louise Woodburn, "Bank and Nonbank Competition for Small Business Credit: Evidence from the 1987 and 1993 National Surveys of Small Business Finances," Federal Reserve Bulletin, vol. 82, no. 11 (November 1996), pp. 983-995; and, Marianne P. Bitler, Alicia M. Robb, and John D. Wolken, "Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances," Federal Reserve Bulletin, vol. 87, no. 4 (April 2001), pp. 183-206.
4. Such borrowers 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.
5. For purposes of the regulations, a low-income census tract has a median family income that is less than 50 percent of the broader area (either Metropolitan Statistical Area (MSA) or nonmetropolitan portion of a state) median family income; a moderate income tract, 50 percent to less than 80 percent; a middle income tract, 80 percent to less than 120 percent; and an upper income tract, 120 percent or more.
6. Data on the share of businesses across neighborhood income categories is derived from information provided by the Office of the Comptroller of the Currency and pertains to the distribution of businesses in 1997 (the most current information available).