The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets

59 Pages Posted: 25 Sep 2017 Last revised: 22 Jan 2018

See all articles by Brian S. Chen

Brian S. Chen

Harvard University - Department of Economics

Samuel Gregory Hanson

Harvard University - Business School (HBS)

Jeremy C. Stein

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 2017

Abstract

Small business lending by the four largest banks fell sharply relative to others in 2008 and remained depressed through 2014. We explore the dynamic adjustment process following this credit supply shock. In counties where the largest banks had a high market share, the aggregate flow of small business credit fell, interest rates rose, fewer businesses expanded, unemployment rose, and wages fell from 2006 to 2010. While the flow of credit recovered after 2010 as other lenders slowly filled the void, interest rates remain elevated. Although unemployment returns to normal by 2014, the effect on wages persists in these areas.

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Suggested Citation

Chen, Brian S. and Hanson, Samuel Gregory and Stein, Jeremy C., The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets (September 2017). NBER Working Paper No. w23843. Available at SSRN: https://ssrn.com/abstract=3042430

Brian S. Chen (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Samuel Gregory Hanson

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Jeremy C. Stein

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-6455 (Phone)
617-496-7352 (Fax)

HOME PAGE: http://post.economics.harvard.edu/faculty/stein/stein.html

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