THE PERCEIVED SIZE OF SMALL BUSINESS BANKING MARKETS

Definition of markets is fundamental to any analysis of competition and is the first step in enforcement of antitrust statutes. In the banking industry, geographic market definitions have been the subject of considerable discussion in recent years. This paper utilizes a survey conducted by the National Federation of Independent Business Research Foundation in 2001. The survey asked a variety of questions relating to American small businesses' experience with financial institutions, including a question asking how many banks were in the market area where the small firm did most of its business. Using the zip code of the survey respondent, this answer was compared with the number of banks in the same county, in the same metropolitan area, or in the local banking market as defined by the Federal Reserve. The results show that both urban and rural markets as perceived by small businesses are considerably smaller than markets as defined by either the US Department of Justice or the Federal Reserve.