Commercial Lending and Distance: Evidence from Community Reinvestment Act Data

36 Pages Posted: 22 Sep 2004

See all articles by Kenneth P. Brevoort

Kenneth P. Brevoort

Board of Governors of the Federal Reserve System

Timothy H. Hannan

Board of Governors of the Federal Reserve System

Date Written: February 2004

Abstract

Innovations such as credit scoring have increased the ability of banks to lend to distant business borrowers, which could expand the geographic market for small business loans. However, if this effect is limited to a few large banks, the market may become segmented and lending distance at local banks actually decreases. This paper, using a new data source and a spatial econometric model, empirically estimates the relationship between distance and commercial lending and how this relationship is evolving over time. We find distance is negatively associated with the likelihood of a local commercial loan being made and that the deterrent effect of distance is consistently more important, the smaller the size of the bank. We find no evidence that distance is becoming less important in the United States in recent years. In fact, the bulk of the evidence suggests that distance may be of increasing importance in local market lending.

Keywords: Commercial lending, spatial probit

JEL Classification: C21, D21, G21, L1

Suggested Citation

Brevoort, Kenneth and Hannan, Timothy, Commercial Lending and Distance: Evidence from Community Reinvestment Act Data (February 2004). Available at SSRN: https://ssrn.com/abstract=593801 or http://dx.doi.org/10.2139/ssrn.593801

Kenneth Brevoort (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Timothy Hannan

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2919 (Phone)
202-452-3819 (Fax)

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