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Banks and the availability of small business loans

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Author Info
Joe Peek
Eric S. Rosengren

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Abstract

Investigators examining problems with credit availability during the most recent recession have been unable to provide definitive evidence that the decline in bank loans was, at least in part, a supply phenomenon. Furthermore, they have not focused on the subset of loans made to borrowers most likely to be dependent on bank financing. This study overcomes these flaws. By examining formal regulatory actions, we clearly identify a supply shock that caused an abrupt decline in bank lending that cannot be attributed to demand. Furthermore, we find that this decreased lending occurred at institutions and in lending categories serving those firms most likely to be dependent on bank financing. This decline in lending to small businesses was likely a contributing factor to the unprecedented increase in business failures in New England.

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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 95-1.

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Date of creation: 1995
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Handle: RePEc:fip:fedbwp:95-1

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Related research
Keywords: Bank loans ; Small business;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Slovin, Myron B & Sushka, Marie E & Polonchek, John A, 1993. " The Value of Bank Durability: Borrowers as Bank Stakeholders," Journal of Finance, American Finance Association, vol. 48(1), pages 247-66, March. [Downloadable!] (restricted)
  2. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June. [Downloadable!] (restricted)
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  3. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March. [Downloadable!] (restricted)
  5. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1991-2), pages 205-248. [Downloadable!]
  6. Hall, B.J., 1993. "How Has the Basle Accord Affected Bank Portfolios?," Harvard Institute of Economic Research Working Papers 1642, Harvard - Institute of Economic Research.
  7. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May. [Downloadable!] (restricted)
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  8. Joe Peek & Eric S. Rosengren, 1994. "Bank Real Estate Lending and the New England Capital Crunch," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(1), pages 33-58. [Downloadable!] (restricted)
  9. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Geoffrey M. B. Tootell, 1996. "Can studies of application denials and mortgage defaults uncover taste-based discrimination?," Working Papers 96-10, Federal Reserve Bank of Boston. [Downloadable!]
  2. Clara Cardone & Maria-Jose Casasola & Margarita Samartin, 2005. "Do Banking Relationships Improve Credit Conditions For Spanish Smes?," Business Economics Working Papers wb052806, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  3. Joe Peek & Eric Rosengren, 1997. "Derivatives Activity at Troubled Banks," Journal of Financial Services Research, Springer, vol. 12(2), pages 287-302, October. [Downloadable!] (restricted)
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  4. R. Alton Gilbert & Mark D. Vaughan, 2000. "Do depositors care about enforcement actions?," Working Papers 2000-020, Federal Reserve Bank of St. Louis. [Downloadable!]
  5. Joe Peek & Eric S. Rosengren, 1996. "Will Legislated Early Intervention Prevent the Next Banking Crisis?," Boston College Working Papers in Economics 359, Boston College Department of Economics. [Downloadable!]
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  6. Stephen D. Oliner & Glenn D. Rudebusch, 1995. "Is there a bank lending channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 1-20. [Downloadable!]
  7. Joe Peek & Eric S. Rosengren, 1995. "Small business credit availability: how important is size of lender?," Working Papers 95-5, Federal Reserve Bank of Boston. [Downloadable!]
  8. Federico Ferretti, 2007. "Consumer credit information systems: a critical review of the literature. Too little attention paid by Lawyers?," European Journal of Law and Economics, Springer, vol. 23(1), pages 71-88, February. [Downloadable!] (restricted)
  9. Joe Peek & Eric S. Rosengren, 1996. "The international transmission of financial shocks: the case of Japan," Working Papers 96-1, Federal Reserve Bank of Boston. [Downloadable!]
    Other versions:
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