The Home Bias and the Credit Crunch: A Regional Perspective

Using detailed data on loan applications and decisions for a large sample of manufacturing firms in Italy during the recent financial crisis, we find that the credit crunch has been harsher in provinces with a large share of branches owned by distantly managed banks. Inconsistent with a flight to quality we do not find evidence that economically weaker firms suffered more during the crisis. In contrast, we find that financially healthier firms were affected more in functionally distant credit markets than in markets populated by less distant banks, consistent with a home bias on the part of nationwide banks.