Today, however, the vast majority of large banks use SBCS and it is small banks that are making the adoption decisions.
Several studies use the Atlanta Federal Reserve survey data to test the effects of SBCS on various measures of credit availability: the quantity of small business credit extended, the risk and opacity associated with this credit, whether low-income areas are served as well as upper-income areas, the geographic spread of the credit, and the length of loan maturities.
The first of the studies finds that the use of SBCS is associated with a significantly increased quantity of small business credit under $100K for 1997 (Frame, Srinivasan, and Woosley 2001).
For loans under $100K, they again find that SBCS is associated with a significant increase in the quantity of small business credit overall; but that for individual institutions, it depends on how long the technology has been used and how it is implemented.
The higher interest rates are observed both for banks using "rules" and "discretion" approaches to the SBCS technology; although the increases are much greater for "discretion" banks.
Frame, Padhi, and Woosley (2004) add two more dimensions to the characteristics of the likely SBCS loan recipients, income and location.
Finally, Berger, Espinosa, Frame, and Miller (2005) examine the effects of using SBCS to reduce informational opacity on loan maturity.
All of the studies reviewed here find that SBCS increases small business credit availability in at least one dimension--overall quantity of lending, lending to relatively opaque, risky borrowers, lending within low-income as well as high-income areas, lending over greater distances, or increasing the maturity of loans.
Potential Implications of SBCS for Research and Public Policy Issues
These include: 1) banking industry consolidation and the emergence of large nationwide institutions ; 2) the appropriate geographic definition for banking markets; 3) the potential development of a thick secondary market for small business credits, and 4) the proliferation of the SBCS technology.
SBCS plays an important role in the research and policy issues regarding the comparative advantages of large and small banks and the consolidation of the banking industry.
10) While it is possible that the disadvantage of large banks in relationship lending would result in reduced supplies of small business credit relative to the small banks they replace, this is not necessarily the case because of the advantage of large banks in the transactions lending technologies, including SBCS.