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Large banks and small firm lending

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  • Bord, Vitaly M.
  • Ivashina, Victoria
  • Taliaferro, Ryan D.

Abstract

We examine the long-lasting effects of the 2007 real estate price collapse on small business credit supply. Banks affected by the decline in real estate prices systematically contracted their credit to small firms. At the same time, regional and local banks, many of which were unaffected by the initial shock, increased small business lending to nearby borrowers and opportunistically expanded their branch networks, making gains in market share that persisted for the following decade. Although the net effect of the contraction in credit was negative, we show that opportunistic expansion tied to permanent market changes is an important offsetting force that dampened the negative effect on small firms during the GFC and its aftermath.

Suggested Citation

  • Bord, Vitaly M. & Ivashina, Victoria & Taliaferro, Ryan D., 2021. "Large banks and small firm lending," Journal of Financial Intermediation, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:jfinin:v:48:y:2021:i:c:s1042957321000255
    DOI: 10.1016/j.jfi.2021.100924
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    Cited by:

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    2. Petkov, Ivan, 2023. "Small business lending and the bank-branch network," Journal of Financial Stability, Elsevier, vol. 64(C).
    3. Granja, João & Leuz, Christian, 2024. "The death of a regulator: Strict supervision, bank lending, and business activity," Journal of Financial Economics, Elsevier, vol. 158(C).
    4. Eduardo Minuci & Scott Schuh, 2022. "Are West Virginia Banks Unique?," Working Papers 22-03, Department of Economics, West Virginia University.
    5. Choudhary, M. Ali & Jain, Anil, 2022. "Finance and inequality: The distributional impacts of bank credit rationing," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    6. Jason Roderick Donaldson & Giorgia Piacentino & Anjan Thakor, 2021. "Intermediation Variety," Journal of Finance, American Finance Association, vol. 76(6), pages 3103-3152, December.
    7. Flannery, Mark J. & Lin, Leming & Wang, Luxi, 2022. "Housing booms and bank growth," Journal of Financial Intermediation, Elsevier, vol. 52(C).
    8. Fenghua Song & Anjan V. Thakor, 2023. "Market Freeze and Bank Capital Structure Heterogeneity," Management Science, INFORMS, vol. 69(3), pages 1856-1876, March.
    9. Teng Liu, 2024. "Save the Farms: Nonlinear Impact of Climate Change on Banks' Agricultural Lending," Papers 2409.19463, arXiv.org.
    10. Lo, Andrew W. & Thakor, Richard T., 2023. "Financial intermediation and the funding of biomedical innovation: A review," Journal of Financial Intermediation, Elsevier, vol. 54(C).
    11. Izadi, Mohammad & Saadi, Vahid, 2023. "Banking Market Structure and Trade Shocks," Journal of Banking & Finance, Elsevier, vol. 153(C).

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    More about this item

    Keywords

    Small firms; Credit supply; Banking competition;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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