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Are bigger banks better? Firm-level evidence from Germany

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  • Kilian Huber

Abstract

The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.

Suggested Citation

  • Kilian Huber, 2020. "Are bigger banks better? Firm-level evidence from Germany," CEP Discussion Papers dp1735, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1735
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    1. Sebastian Doerr & Stefan Gissler & José-Luis Peydró & Hans-Joachim Voth, 2018. "From finance to fascism," Economics Working Papers 1651, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2020.
    2. You Suk Kim & Donghoon Lee & Tess C. Scharlemann & James Vickery, 2022. "Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance," Finance and Economics Discussion Series 2022-017, Board of Governors of the Federal Reserve System (U.S.).
    3. Marc Blatter & Andreas Fuster, 2022. "Scale effects on efficiency and profitability in the Swiss banking sector," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-24, December.
    4. Senay Agca & Pablo Slutzky & Stefan Zeume, 2021. "Anti-Money Laundering Enforcement, Banks, and the Real Economy," Working Papers 2021-20, The George Washington University, Institute for International Economic Policy.
    5. Glancy, David, 2021. "Housing bust, bank lending & employment: Evidence from multimarket banks," Journal of Banking & Finance, Elsevier, vol. 127(C).

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    Keywords

    bank regulation; big banks; bank size; economic growth; Brexit; economic geography; employment; globalisation; productivity; technological change;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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