This study examines how diversified operations of banks impact their loans to SMEs by using panel data on 28 banks. The threshold effect of derivatives trading among banks and their impact on their financial behaviors are also explored. The investigation which takes all banks as one group is improbable. Based on the observations of this study, we recommend that banks profits seeking behavior vary with the banks size .The results indicate two separate regime effects for large-sized banks. While allowing banks to more easily diversify their credit risk exposure, derivatives trading also alter their lending behaviors. When trading of banks derivatives exceeds US$14.5 billion, increased banks assets is associated with a corresponding increase in loans to SMEs. However, the banking strategy is ambiguous if trading in derivatives among banks is less than US$14.5 billion.