Large Banks and Small Firm Lending
52 Pages Posted: 11 Nov 2015 Last revised: 21 Oct 2018
Date Written: October 15, 2018
We show that since 2007, there was a large and persistent shift in the composition of lenders to small firms. Large banks impacted by the collapse of real estate prices systematically contracted their credit to all small firms throughout the U.S.. However, healthy banks expanded their operations and entered new banking markets. The market share gain of these banks was a standard deviation above the long-run historical market share growth and persists for years following the financial crisis. Despite this offsetting expansion, the net effect of the contraction in credit was negative, with lower aggregate credit and deposits growth, and lower entrepreneurial activity through 2015.
Keywords: Small Firms, Credit Supply, Banking Competition.
JEL Classification: G21
Suggested Citation: Suggested Citation