A darker side to decentralized banks
Subtitle: market power and credit rationing in SME lending
By: Rodrigo Canales, Ramana Nanda
Contributors: Nanda, Ramana; Harvard Business School
Edition: 2nd rev.
Series: Working paper / Harvard Business School -- 08-101; Working paper (Harvard Business School) -- 08-101
Publisher: Harvard Business School
Published: 2011
Place of publication: Boston]
Language: eng
Number of pages: 21
Description: We use loan-level data to study how the organizational structure of banks impacts small business lending. We find that decentralized banks ― where branch managers have greater autonomy over lending decisions ― give larger loans to small firms and those with "soft information". However, decentralized banks are also more responsive to their own competitive environment. They are more likely to expand credit when faced with competition but also cherry pick customers and restrict credit when they have market power. This "darker side" to decentralized banks in concentrated markets highlights that the level of local banking competition is key to determining which organizational structure provides better lending terms for small businesses.
Notes: "June 2008, revised January 2011, August 2011" -- Publisher's website.

Includes bibliographical references.