Cookie-Cutter Versus Character: The Micro Structure of Small Business Lending by Large and Small Banks

34 Pages Posted: 7 Nov 2008

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Lawrence G. Goldberg

University of Miami - Department of Finance

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: December 1997

Abstract

The recent consolidation in the banking system has focused attention on the difference in lending between large and small banks, since large banks lend proportionally less to small business. We use a newly available survey of small business finances conducted by the Federal Reserve System to analyze the micro-level differences between large banks and small banks in the loan approval process. We find that large banks (over $1 billion in assets) appear to employ standard criteria obtained from financial statements in the loan decision process, while small banks (less than $1 billion in assets) deviate from these criteria more and appear to rely on their impression of the character of the borrower to a larger extent. These "cookie-cutter" and "character" approaches are consistent with the incentives and environments facing large and small banks.

Suggested Citation

Cole, Rebel A. and Goldberg, Lawrence G. and White, Lawrence J., Cookie-Cutter Versus Character: The Micro Structure of Small Business Lending by Large and Small Banks (December 1997). NYU Working Paper No. FIN-98-022. Available at SSRN: https://ssrn.com/abstract=1296419

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Lawrence G. Goldberg

University of Miami - Department of Finance

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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