NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Brian S. Chen, Samuel G. Hanson, Jeremy C. Stein

NBER Working Paper No. 23843
Issued in September 2017
NBER Program(s):Corporate Finance

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.

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Document Object Identifier (DOI): 10.3386/w23843

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