The Fourteenth Banker Blog

May 19, 2010

What Small Business Lending??

Filed under: Running Commentary — thefourteenthbanker @ 2:11 PM

I read the annual reports on all the banks listed below and the information I was able to glean is presented in the table.   There is a basic problem.   Other than JP Morgan, nobody seems to want to disclose any real information about what they are doing in Small Business lending.   Here is my disclaimer.   I went through probably 1500 pages of pdf files.   I know what to look for.   I searched the terms Small Business and Business Banking in addition to looking through various tabular presentations.  Most of the banks just lump their numbers into other numbers.  So, it is possible I missed something.  If you are with one of those other banks and would like to comment, I will gladly modify my information.  Since some large banks present their loan numbers but not deposit numbers, I had to make an assumption.   I assumed that the proportion of small business deposits to total deposits is the same for all the banks as it is for JPM.  I know that can’t be right, but it is probably close for banks with substantial retail branches.

As you will see from the data, even if I am wrong by a factor of 100%-200%, the conclusions are the same.  Big banks are not focused on Small Business lending.

As I said after the Warren Report came out, we need a Marshall Plan for Small Business credit.   The SBA is not the answer.  The banks need to get focused.   It is interesting that all four of the largest banks, and lets face it, those are the ones that matter, have close to the same dollars in small business loans.   In each case, I would think a respectable goal would be to take their small business lending up to about $100 Billion from the mid teens.   That would bring their small business loan to deposit ratio up to about 1/3, give or take.

The question can also be asked, “WHAT ARE YOU DOING WITH THE OTHER TRILLION???”


  1. I am beginning to doubt that you are a banker… otherwise you would know that big banks are not in the business of giving small loans to businesses were they have to tie up 8 percent of their capital, especially when they are given so many opportunities by the regulators to do business that requires so much less capital allowing them so much leverage.

    Comment by Per Kurowski — May 19, 2010 @ 2:23 PM | Reply

  2. So how do the consumer protection rules work with businesses extending credit to their customers?

    Comment by Jim — May 20, 2010 @ 5:17 PM | Reply

  3. […] Waiting for that small business loan? You may be waiting quite a while if this analysis of the approach big banks are taking to small business has any validity. Are big banks lending and if so to whom? And if big banks are not a viable option for small businesses what other financing options should entrepreneurs and small business operators turn to during difficult economic times? The Fourteenth Banker Blog […]

    Pingback by Small Business News: Escaping the Rat Race | Small Business Trends — May 20, 2010 @ 8:55 PM | Reply

  4. FDIC reports that 775 banks are problem banks up from 702 at the end of 2009.

    FDIC Chairman said

    “The FDIC data suggested that the largest U.S. banks were faring better than their smaller rivals. The former enjoyed the largest year-over-year increase in earnings and saw the biggest reduction in loan-loss reserves, or the money they must set aside to account for future, expected losses on loans. Ms. Bair said the rate of decline in lending by larger banks also slowed in each of the past two quarters”

    No surprises here!

    Comment by alwaysnaive — May 20, 2010 @ 9:00 PM | Reply

  5. Please note that banks can’t lend to companies who are losing money and showing losses. Most small businesses are not savvy enough to react when they see signs of slowing sales.

    I work with bankers. I listen to loan review committees. I have clients who are lenders. I was a lender. You cannot lend against regulations unless you want to be shutdown without any notice and yes that has happened to a large public bank when they got a little too liberal on their small business lending. They were shut down for 6 days. This includes not being allowed to disburse money on lines of credit to existing customers.

    Here’s my take on it.

    Comment by Kim — May 21, 2010 @ 2:59 AM | Reply

    • All valid points. However, lending requires customized solutions and highly skilled bankers who can sift through the opportunities using a framework that takes all factors into account. Sometimes that means getting into the drivers of the business and discerning those trends even before they show up in historical financials. Most banks that are in trouble made too many real estate loans. I suppose there are some that made the wrong C&I loans but that would be a fraction. The issue is big banks have to be there and have to be structured to make business loans throughout the spectrum of size and industry. Cost cannot be driven down to the point where there is little capacity. The excess deposits have been deployed for shorter term shareholder gain rather than supporting the economy through the cycle. Losses on small business loans need to be kept in perspective over time and there must be some consistency in the provision of credit through the cycle. Yes, there must be some reduction, some tightening of terms… but the scale of change is the issue. This is one of the problems of the modern corporation. Flow is cut reactively and restored too late. The psychology is similar to the reactive stock market investor who buys at the highs and sells at the lows. Regs are a problem also in that they are backwards looking and surface level.

      Comment by thefourteenthbanker — May 21, 2010 @ 4:34 AM | Reply

  6. […] need to get the information from the banks on what they do and how they do it.  You cannot rely on public information. Elizabeth Warren’s report already showed you […]

    Pingback by Ben Bernanke (Confused Economist) Lessons from the Gulf « The Fourteenth Banker Blog — June 9, 2010 @ 7:05 PM | Reply

  7. I think retail banking is great marketing plan since it is profitable with low diluted risks, and stable source of interest and non-interest income for the bank at the same time providing personal loans and consumer products accessible to average income individuals.

    Comment by james wong — September 27, 2010 @ 2:10 PM | Reply

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Create a free website or blog at

%d bloggers like this: