Small Business Lending Declined after Dodd-Frank Passed
Relatively small commercial and industrial loans have fallen by 9 percent at large banks and by even more at smaller banks since 2010, when the legislation was enacted.
The Dodd–Frank Wall Street Reform and Consumer Protection Act, which was passed in the wake of the 2008 financial crisis and was designed to safeguard the banking system, appears to have made it more difficult for small businesses and entrepreneurs to obtain funding.
Economic and Financial Consequences of Corporate Cyberattacks
After controlling for economic conditions and other influences on lending, the researchers report that the share of commercial and industrial loans of less than $1 million at large banks — those with at least $300 million in assets — has fallen by 9 percentage points since 2010. The share of small loans at smaller banks has declined by twice as much. The real volume of small loans declined sharply in 2011, and it has grown only slowly in subsequent years, while the volume of loans of over $1 million has increased by 80 percent since 2011. This development marks a sharp break from the 1993 to 2010 period, when the value of small and large loan originations fol-lowed roughly similar trends. The researchers conclude that this divergence is due in part to new compliance regulations that have in-creased the fixed costs associated with making loans. The regulations made loans to large and established firms relatively more attractive by treating loans to small and new firms as much riskier when calculating banks' scores in stress tests.
— Steve Maas
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