Shared Destinies? Small Banks and Small Business Consolidation

66 Pages Posted: 20 Nov 2020 Last revised: 8 Feb 2022

See all articles by Claire Brennecke

Claire Brennecke

FDIC, Division of Insurance and Research

Stefan Jacewitz

FDIC, Division of Insurance and Research

Jonathan Pogach

FDIC, Division of Insurance and Research

Date Written: November 2021

Abstract

We identify a new source of bank consolidation in the United States. For decades, both
the financial and real sides of the economy have experienced considerable consolidation. We
show that banking-sector consolidation is, in part, a consequence of real-sector consolidation;
because small banks are a disproportionate source of small-business credit, they are disproportionately exposed to shocks to small-business growth. Using a Bartik instrument based on
national small-business trends and county-level industry exposure, we show that changes to
the real-side demand for small-business credit is partially responsible for the relative decline
in small banks’ deposits, income, and loan growth.

Keywords: consolidation; banks; community banks; relationship lending; Bartik instrument

JEL Classification: G21, G34, L25, R12

Suggested Citation

Brennecke, Claire and Jacewitz, Stefan and Pogach, Jonathan, Shared Destinies? Small Banks and Small Business Consolidation (November 2021). FDIC Center for Financial Research Paper No. 2020-04, Available at SSRN: https://ssrn.com/abstract=3733791 or http://dx.doi.org/10.2139/ssrn.3733791

Claire Brennecke

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

Stefan Jacewitz (Contact Author)

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

Jonathan Pogach

FDIC, Division of Insurance and Research ( email )

550 17th Street NW
Washington, DC 20429
United States

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