Small Business Lending and the Bank-Branch Network
46 Pages Posted: 26 Mar 2016 Last revised: 14 Jan 2020
Date Written: December 1, 2019
I exploit local supply shocks, due bank exposure to fracking or RE booms, to answer: i) how important is the proximity to competitors in a bank's lending decision? ii) does lending close to competitors substitute for existing credit or generate economic activity? I find that after an inflow of liquidity banks lend close to competitors where they are at an informational disadvantage, implying that proximity to competitors can limit but no completely eliminate bank's lending. During real estate booms, banks contract in markets where their branches are close to branches of competitors and not in the core markets of competitors. Activity increases in tracts close to the branches of competitors and far from the branches of the expanding bank. The negative supply shocks reduces total lending but not overall activity.
Keywords: Small Business Lending, Bank-branch Network, Lending Channel, Energy Boom, Real Estate Boom
JEL Classification: G21, R12, E51
Suggested Citation: Suggested Citation