Specialization in Banking

60 Pages Posted: 14 May 2021

See all articles by Kristian Blickle

Kristian Blickle

Federal Reserve Banks - Federal Reserve Bank of New York

Cecilia Parlatore

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Anthony Saunders

New York University - Leonard N. Stern School of Business

Date Written: May 2021

Abstract

Using highly detailed data on the loan portfolios of large U.S. banks, we document that these banks "specialize" by concentrating their lending disproportionately into one industry. This specialization improves a bank’s industry-specific knowledge and allows it to offer generous loan terms to borrowers, especially to firms with access to alternate sources of funding and during periods of greater nonbank lending. Superior industry-specific knowledge is further reflected in better loan and, ultimately, bank performance. Banks concentrate more on their primary industry in times of instability and relatively lower Tier 1 capital. Finally, specialization counteracts a well-documented trend in reduced lending by large banks to opaque small and medium-sized enterprises.

Keywords: bank specialization, bank concentration, asymmetric information, loan performance, bank performance

JEL Classification: D4, G20, G21

Suggested Citation

Blickle, Kristian and Parlatore, Cecilia and Saunders, Anthony, Specialization in Banking (May 2021). FRB of New York Staff Report No. 967, Available at SSRN: https://ssrn.com/abstract=3845504 or http://dx.doi.org/10.2139/ssrn.3845504

Kristian Blickle (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Cecilia Parlatore

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

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