Banking Market Structure and Trade Shocks

47 Pages Posted: 16 Jul 2021 Last revised: 4 Nov 2021

See all articles by Mohammad Izadi

Mohammad Izadi

Goethe University Frankfurt - House of Finance

Vahid Saadi

IE Business School, IE University

Date Written: July 14, 2021

Abstract

The structure of the local banking market, characterized by bank specialization and bank concentration, affects credit and labor market responses to an import shock to the local economy. During the surge in U.S. imports from China from 1998 to 2006, small business loans (SBL) decline in counties that face a larger import shock. Bank geographical specialization positively affects banks' SBL origination in response to the import shock, while there is little evidence for a significant effect with respect to bank concentration. Consistent with these results, average employment and wage growth decline in counties hit by the import shock, while higher bank specialization attenuates these negative labor outcomes. Bank concentration does not seem to have such attenuation effects. Furthermore, in the face of import competition bank specialization relatively improves firm innovation, which itself seems to help such banks keep their profitability and asset quality intact.

Keywords: Banking market structure, Import competition, Labor market outcomes

JEL Classification: G21, G29, L10, F14, F16, F49

Suggested Citation

Izadi, Mohammad and Saadi, Vahid, Banking Market Structure and Trade Shocks (July 14, 2021). Available at SSRN: https://ssrn.com/abstract=3886408 or http://dx.doi.org/10.2139/ssrn.3886408

Mohammad Izadi

Goethe University Frankfurt - House of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, DE 60323
Germany

Vahid Saadi (Contact Author)

IE Business School, IE University

Calle Maria de Molina 12
Madrid, Madrid 28006
Spain

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