Weak Banks Drag on Small Business Lending

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NEW YORK – It seems obvious: Weaker banks are lending less to businesses than strong ones are, according to a new analysis from the Federal Reserve Bank of San Francisco. What’s surprising is how much of the recent drop in small business loans can be traced to a minority of community banks that are shrinking their loan books, even as healthy small banks increase lending.

Since the financial crisis struck four years ago, the amount of money banks lend to small businesses has been shrinking. That’s a problem because companies’ borrowing is considered crucial to creating jobs. The San Francisco Fed’s paper suggests that in 2011, the drop in lending by weak small banks overshadowed increases among stronger lenders. Read more at Bloomberg Businessweek.

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