Small Bank Lending Amidst the Ascent of Fintech and Shadow Banking: A Sideshow?

61 Pages Posted: 29 Jan 2019 Last revised: 28 May 2019

See all articles by Taylor A. Begley

Taylor A. Begley

Washington University in St. Louis - John M. Olin Business School

Kandarp Srinivasan

Northeastern University - D’Amore-McKim School of Business

Date Written: May 21, 2019

Abstract

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

Begley, Taylor A. and Srinivasan, Kandarp, Small Bank Lending Amidst the Ascent of Fintech and Shadow Banking: A Sideshow? (May 21, 2019). Northeastern U. D’Amore-McKim School of Business Research Paper No. 3317672. Available at SSRN: https://ssrn.com/abstract=3317672 or http://dx.doi.org/10.2139/ssrn.3317672

Taylor A. Begley (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.taylorbegley.com

Kandarp Srinivasan

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
United States

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