Weak Banks Drag on Small Business Lending

Federal and state officials closing Montgomery Bank and Trust in Ailey, GA, on July 6. Photograph by Hyosub Shin/Atlanta Journal Constitution/AP Photos

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.

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