Cookie-Cutter versus Character: The Micro Structure of Small Business Lending by Large and Small Banks
AbstractThe recent consolidation in the banking system has focused attention on the difference in lending between large and small banks, since large banks lend proportionally less to small business. We use a newly available survey of small business finances conducted by the Federal Reserve System to analyze the micro-level differences between large banks and small banks in the loan approval process. We find that large banks (over $1 billion in assets) appear to employ standard criteria obtained from financial statements in the loan decision process, while small banks (less than $1 billion in assets) deviate from these criteria more and appear to rely on their impression of the character of the borrower to a larger extent. These "cookie-cutter" and "character" approaches are consistent with the incentives and environments facing large and small banks.
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Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-022.
Date of creation: 16 Dec 1997
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Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/
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Other versions of this item:
- Rebel A. Cole & Lawrence G. Goldberg & Lawrence J. White, 1999. "Cookie-cutter versus character: the micro structure of small business lending by large and small banks," Proceedings 777, Federal Reserve Bank of Chicago.
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