Specialization in Banking

Kristian Blickle, Cecilia Parlatore and Anthony Saunders

No 967, Staff Reports from Federal Reserve Bank of New York

Abstract: Using highly detailed data on the loan portfolios of large U.S. banks, we document that these banks "specialize" by concentrating their lending disproportionately into one industry. This specialization improves a bank’s industry-specific knowledge and allows it to offer generous loan terms to borrowers, especially to firms with access to alternate sources of funding and during periods of greater nonbank lending. Superior industry-specific knowledge is further reflected in better loan and, ultimately, bank performance. Banks concentrate more on their primary industry in times of instability and relatively lower Tier 1 capital. Finally, specialization counteracts a well-documented trend in reduced lending by large banks to opaque small and medium-sized enterprises.

Keywords: bank specialization; bank concentration; asymmetric information; loan performance; bank performance (search for similar items in EconPapers)
JEL-codes: D4 G20 G21 (search for similar items in EconPapers)
Pages: 60
Date: 2021-05-01
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (6)

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Working Paper: Specialization in Banking (2023)
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