Changes

Despite the significant credit rating deduction incurred by the recession, small businesses have been able to find loans from alternative sources. Traditionally, smaller banks have catered to small businesses unable to qualify for loans from institutional investors, or bigger banks. *In 2010, small and community banks accounted for 48.1% of all small business bank loans, according to the Mercatus Center at George Mason University [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435206]. Consequently, small businesses have a vested interest in the well-being of their community banks. Unfortunately for small business, these community banks are disappearing at alarming rates.

Consequently, small businesses have a vested interest in the well-being of their community banks. Unfortunately for small business, these community banks are disappearing at alarming rates. *Small banks have, since 1993, seen their total numbers fall by almost 50%. In 1993, over 11,000 banks were around. Nowadays, that number is closer to 6,000. Research suggests a relationship between this decline and other external factors . Primarily, it appears that many small banks simply cannot compete, and have dropped out of the market. *A Mercatus Center report[http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435206] shows that small banks' share of the domestic deposit market fell by 50% (from 40 to 20%) in the last 15 years. *Meanwhile, the largest 5 banks have "picked up the slack" and acquired a current portion of 39.6%, contrary to their 19% holding in 2001. * Beyond that, small banks' total assets have been halved since 2000, and don't show signs of improving. *Smaller banks with consistently profitable operations have been acquired, so as to accommodate for higher regulatory costs, search costs, and transaction costs.  In a nutshell, it is a difficult time for small banks. Trends indicate that consolidation is the a bank's most feasible route to maintain solvency in today's credit market.