Small Bank Lending Amidst the Ascent of Fintech and Shadow Banking: A Sideshow?
61 Pages Posted: 29 Jan 2019 Last revised: 28 May 2019
Date Written: May 21, 2019
The share of mortgage lending by the four largest banks (Big4) dropped from about 30% to 23% of the market from 2009-2013 following crisis-related fines and heightened regulatory burden. Aggregate patterns suggest this gap was filled by shadow banks (24% to 30%) and fintech lenders (2% to 7%). Despite this secular rise in nonbank lending, we present new cross-sectional facts showing that small banks were twice as responsive as shadow banks to fill the gap left by the Big4 retreat, and more than four-times more responsive than fintech lenders. We provide evidence that cross-sectional variation in consumer preferences for traditional banks and institutional features of the mortgage market play important roles in explaining our findings. Our results highlight the continued importance of small banks despite the rise of shadow banks and financial technology disruption.
Keywords: small banks, shadow banks, fintech, mortgage market, mortgage lending
JEL Classification: G2, L5
Suggested Citation: Suggested Citation