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Has multi-market banking changed the response of small business lending to local economic shocks?

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  • William R. Keeton

Abstract

The consolidation of the U.S. banking industry has greatly increased the importance of large multi-market banking organizations relative to smaller, single-market banks. An issue that has not received much attention is how multi-market banking has affected the response of local bank lending to local economic shocks. When an area is hit particularly hard by a recession, is bank lending now more likely to decline in the area, exacerbating the downturn? Or is bank lending now more likely to remain unchanged, moderating the downturn? The answer is important to local communities because it affects the volatility of their output and employment. But it is also important to the national economy, because the distribution of credit across markets can affect overall productivity and growth. ; Keeton uses new data to examine the impact on local lending of the slowdowns in some local economies during the 2001 recession and recovery. The basic approach is to see whether these slowdowns had a different effect on lending by single-market banks than on lending by multi-market banks. He finds substantial support for the view that the shift to multi-market banking has reduced the overall sensitivity of bank lending to local economic shocks. He also finds some evidence that this effect may be due to a lesser ability of multi-market banks to identify and respond to changes in local economic conditions.

Suggested Citation

  • William R. Keeton, 2009. "Has multi-market banking changed the response of small business lending to local economic shocks?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-35.
  • Handle: RePEc:fip:fedker:y:2009:i:qi:p:5-35:n:v.94no.1
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    References listed on IDEAS

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    Cited by:

    1. Sääskilahti, Jaakko, 2016. "Local bank competition and small business lending after the onset of the financial crisis," Journal of Banking & Finance, Elsevier, vol. 69(C), pages 37-51.
    2. Keith R. Phillips & James Nordlund & Roberto Coronado, 2011. "Factors behind the convergence of economic performance across U.S. states," Working Papers 1108, Federal Reserve Bank of Dallas.
    3. Petkov, Ivan, 2015. "Small Business Lending and the Bank-Branch Network," MPRA Paper 85762, University Library of Munich, Germany, revised 13 Oct 2017.

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