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The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets

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Listed:
  • Brian S. Chen
  • Samuel G. Hanson
  • Jeremy C. Stein

Abstract

Small business lending by the four largest banks fell sharply relative to others in 2008 and remained depressed through 2014. We explore the dynamic adjustment process following this credit supply shock. In counties where the largest banks had a high market share, the aggregate flow of small business credit fell, interest rates rose, fewer businesses expanded, unemployment rose, and wages fell from 2006 to 2010. While the flow of credit recovered after 2010 as other lenders slowly filled the void, interest rates remain elevated. Although unemployment returns to normal by 2014, the effect on wages persists in these areas.

Suggested Citation

  • Brian S. Chen & Samuel G. Hanson & Jeremy C. Stein, 2017. "The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets," NBER Working Papers 23843, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23843
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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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