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David and Goliath: small banks in an era of consolidation. Evidence from Italy

  • Bongini, Paola
  • Di Battista, Maria Luisa
  • Zavarrone, Emma

Consolidation in the banking industry has caused concern about the survival of small banks. However, empirical evidence shows that often small banks are performing better than larger banks in terms of loan growth and profitability. This paper addresses the main question of “how David can be successful in a Goliath’s world” analysing two broad sets of issues, tested on a sample of Italian small banks. We first address the question of whether peculiarities of small banks, e.g their ability to lever on relationship lending, are good explanatory variables of their loan growth. Second, we investigate the relationship between loan growth and profitability and credit risk to point out which small banks can continue to be a viable competitor of larger bank.

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File URL: http://mpra.ub.uni-muenchen.de/4841/1/MPRA_paper_4841.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4841.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:4841
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  1. Jonathan Scott, 2004. "Small Business and the Value of Community Financial Institutions," Journal of Financial Services Research, Springer, vol. 25(2), pages 207-230, April.
  2. Mitchell A. Petersen & Raghuram G. Rajan, 1994. "The Effect of Credit Market Competition on Lending Relationships," NBER Working Papers 4921, National Bureau of Economic Research, Inc.
  3. William R. Keeton, 1995. "Multi-office bank lending to small businesses: some new evidence," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 45-57.
  4. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  5. Allen N. Berger & Nathan H. Miller & Mitchell A. Petersen & Raghuram G. Rajan & Jeremy C. Stein, 2002. "Does Function Follow Organzizational Form? Evidence From the Lending Practices of Large and Small Banks," Harvard Institute of Economic Research Working Papers 1976, Harvard - Institute of Economic Research.
  6. Banerjee, Abhijit V & Besley, Timothy & Guinnane, Timothy W, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 491-515, May.
  7. Bonaccorsi di Patti, Emilia & Gobbi, Giorgio, 2001. "The changing structure of local credit markets: Are small businesses special?," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2209-2237, December.
  8. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The effects of bank mergers and acquisitions on small business lending," Finance and Economics Discussion Series 1997-28, Board of Governors of the Federal Reserve System (U.S.).
  9. Joe Peek & Eric S. Rosengren, 1997. "Bank consolidation and small business lending: it's not just bank size that matters," Working Papers 97-1, Federal Reserve Bank of Boston.
  10. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
  11. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
  12. Allen N. Berger & Gregory F. Udell, 2002. "Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure," Economic Journal, Royal Economic Society, vol. 112(477), pages F32-F53, February.
  13. Robert DeYoung & Lawrence G. Goldberg & Lawrence J. White, 1997. "Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-025, New York University, Leonard N. Stern School of Business-.
  14. Robert DeYoung & William C. Hunter & Gregory F. Udell, 2003. "The past, present, and probable future for community banks," Working Paper Series WP-03-14, Federal Reserve Bank of Chicago.
  15. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
  16. Ongena, S. & Smith, D.C., 2000. "Bank relationships : A review," Other publications TiSEM 993b88a5-9a0f-42de-9cec-6, Tilburg University, School of Economics and Management.
  17. Keeton, William R., 1995. "Multi-Office Bank Lending To Small Businesses: Some New Evidence," Proceedings: 1995 Regional Committee NC-207, October 16-17, 1995, Kansas City, Missouri 131493, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  18. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, 02.
  19. Bonaccorsi di Patti Emilia & Eramo Ginette & Gobbi Giorgio, 2005. "Piccole e grandi banche nel mercato del credito in Italia," Banca Impresa Società, Società editrice il Mulino, issue 1, pages 3-34.
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