IDEAS home Printed from
   My bibliography  Save this paper

Business Strategies: Bank Commercial Lending vs. Finance Company Lending


  • Donald G. Simonson

    (The Jerome Levy Economics Institute)


Donald Simonson reviews the shift of a large share of the credit market to commercial financial companies during the last decade and asks whether the banks' loss of market share resulted in a loss of efficiency. In every year from 1983 to 1992 business credit at commercial banks. Reasons for this include the following: (1) Reduction in bank loans to businesses is a continuation of losses of business relationships. (2) Banks have lost the their historical funding cost advantage compared to nondepository intermediaries. (3) With the loss of banks' traditional "blue chip" corporate loan market, profitability concerns and the opportunity to exploit FDIC protection of their uninsured deposits attracted banks promise larger payoffs on high-risk loans to less-developed countries, energy development and production, real estate, and highly leveraged takeovers. This resulted in less lending to core customers in the small and middle markets. (4) Overzealous regulators and tough banks examinations may have been responsible for the cyclical decline in the availability of bank credit. The surge of financial company lending during the recent period of stagnant bank lending presents an opportunity to test the goodness of bank lending by comparing the performance of banks with unregulated competitors. Simonson concludes that finance companies were no riskier, and possibly less so, than commercial banks. And yet,they appear to have produced greater accounting returns, as well as significantly greater risk adjusted market returns fir their shareholders despite substantially greater capital markets for business, financial companies make attractive acquisition targets.

Suggested Citation

  • Donald G. Simonson, 1999. "Business Strategies: Bank Commercial Lending vs. Finance Company Lending," Macroeconomics 9906007, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9906007
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 35; figures: included

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item

    JEL classification:

    • E - Macroeconomics and Monetary Economics

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:9906007. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.