Shared Destinies? Small Banks and Small Business Consolidation
66 Pages Posted: 20 Nov 2020 Last revised: 8 Feb 2022
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: Suggested Citation