Small Bank Lending in the Era of Fintech and Shadow Banking: A Sideshow?
60 Pages Posted: 29 Jan 2019 Last revised: 1 Oct 2019
Date Written: September 30, 2019
Mortgage lending by the four largest banks (Big4) dropped from 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 non-bank lenders (26% to 37%). However, amidst these secular aggregate trends, we present new county-level facts showing that small banks were twice as responsive as shadow banks to fill the local gap left by the Big4 retreat, and more than four-times more responsive than fintech lenders. We find 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