Heterogeneous Elasticities of Bank Loan Supply: Evidence from SBA Loan Guarantee Expansion

40 Pages Posted: 23 Aug 2019

Date Written: August 21, 2019


US Small Business Administration (SBA) temporarily expanded its loan subsidy program from 2009 to 2010 in an effort to stimulate loans to small businesses. We explore the heterogeneous bank responses following this policy change. Using a novel data that merges the quarterly bank-level call report to the subsidized loan data, we first show that big banks prefer to issue many loans of small size while small banks issue few loans of bigger size.Abstract which can be explained through a simple portfolio optimization model with fixed cost. Then, we show that small banks — especially those that were part of SBA's Preferred Lender Program — increased both the extensive (number of loans) and the intensive (average loan size) margin the most. Then, we show that these big banks that make up the majority of the loan volume were particularly inelastic in increasing loan supply in response to this positive policy shock. This has strong policy implications given that a sizable amount of taxpayer's money was used to fund this temporary expansion.

Keywords: banks, loan guarantee, lending, heterogeneity, SBA

JEL Classification: G21, E51, G28, H81

Suggested Citation

Choi, Bong-Geun and Lee, Hyun, Heterogeneous Elasticities of Bank Loan Supply: Evidence from SBA Loan Guarantee Expansion (August 21, 2019). Available at SSRN: https://ssrn.com/abstract=3440541 or http://dx.doi.org/10.2139/ssrn.3440541

Bong-Geun Choi (Contact Author)

Fount Inc. ( email )

50 Chungjeong-ro, 6/F
Seoul, 03740
Korea, Republic of (South Korea)

Hyun Lee

Analysis Group, Inc. ( email )

One South Dearborn
21st Floor
Chicago, IL 60603
United States

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