Rebel A. Cole, Lawrence G. Goldberg, Lawrence J. White
ABSTRACT
The recent consolidation in the banking system has focused attention
on the difference in lending between large and small banks, since large
banks lend proportionally less to small business. We use a newly available
survey of small business finances conducted by the Federal Reserve System
to analyze the micro-level differences between large banks and small banks
in the loan approval process. We find that large banks (over $1 billion
in assets) appear to employ standard criteria obtained from financial statements
in the loan decision process, while small banks (less than $1 billion in
assets) deviate from these criteria more and appear to rely on their impression
of the character of the borrower to a larger extent. These "cookie-cutter"
and "character" approaches are consistent with the incentives and environments
facing large and small banks.
Goldberg: (212) 998-0358 lgoldber@stern.nyu.edu
White: (212) 998-0880 lwhite@stern.nyu.edu
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