Changes in the banking system and small business lending |
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Authors: | David Vera Kazuki Onji |
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Institution: | (1) Department of Economics, Kent State University, PO Box 5190, Kent, OH 44242-0001, USA;(2) Crawford School of Economics and Government, The Australian National University, Canberra, ACT, 0200, Australia |
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Abstract: | Since small businesses typically rely on small banks as their primary source of financing, there are concerns that the wave
of bank consolidation of the 1990s may have reduced the availability of loans to small businesses in the US. Using a panel
of state-level banking information over 1993–2002, this paper shows that the Riegle–Neal Interstate Banking and Branching
Efficiency Act of 1994 reduced the number of small banks, but not the amount of small business lending. We also show that
small banks are participating less in small business lending. These results imply that the bank-lending channel of the monetary
transmission mechanism became less important in the US in the late 1990s as a result of more firms borrowing from large banks
that are less sensitive to monetary shocks. |
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