Shared Destinies? Small Banks and Small Business Consolidation

66 Pages Posted: 20 Nov 2020 Last revised: 8 Feb 2022

See all articles by Claire Brennecke

Claire Brennecke

Government of the United States of America - Federal Deposit Insurance Corporation (FDIC)

Stefan Jacewitz

Federal Reserve Bank of Kansas City

Jonathan Pogach

FDIC, Division of Insurance and Research

Date Written: November 2021

Abstract

We identify a new source of bank consolidation in the United States. For decades, both
the financial and real sides of the economy have experienced considerable consolidation. We
show that banking-sector consolidation is, in part, a consequence of real-sector consolidation;
because small banks are a disproportionate source of small-business credit, they are disproportionately exposed to shocks to small-business growth. Using a Bartik instrument based on
national small-business trends and county-level industry exposure, we show that changes to
the real-side demand for small-business credit is partially responsible for the relative decline
in small banks’ deposits, income, and loan growth.

Keywords: consolidation; banks; community banks; relationship lending; Bartik instrument

JEL Classification: G21, G34, L25, R12

Suggested Citation

Brennecke, Claire and Jacewitz, Stefan and Pogach, Jonathan, Shared Destinies? Small Banks and Small Business Consolidation (November 2021). FDIC Center for Financial Research Paper No. 2020-04, Available at SSRN: https://ssrn.com/abstract=3733791 or http://dx.doi.org/10.2139/ssrn.3733791

Claire Brennecke

Government of the United States of America - Federal Deposit Insurance Corporation (FDIC) ( email )

550 17th Street NW
Washington, DC 20429
United States

Stefan Jacewitz (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States

Jonathan Pogach

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

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