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Shared Destinies? Small Banks and Small Business Consolidation

Claire Brennecke, Stefan Jacewitz and Jonathan Pogach
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No RWP 21-19, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: We identify a new source of bank consolidation in the United States. For decades, both the financial and real sides of the economy have experienced considerable consolidation. We show that banking-sector consolidation is, in part, a consequence of real-sector consolidation; because small banks are a disproportionate source of small-business credit, they are disproportionately exposed to shocks to small-business growth. Using a Bartik instrument based on national small-business trends and county-level industry exposure, we show that changes to the real-side demand for small-business credit is partially responsible for the relative decline in small banks’ deposits, income, and loan growth.

Keywords: Consolidation; Banks and banking; Community banking; Relationship lending; Bartik instrument (search for similar items in EconPapers)
JEL-codes: G21 G34 L25 R12 (search for similar items in EconPapers)
Pages: 65
Date: 2022-01-14
New Economics Papers: this item is included in nep-ban, nep-ent, nep-fdg and nep-sbm
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DOI: 10.18651/RWP2021-19

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