RWP 21-19, January 2022
We identify a new source of bank consolidation in the United States. For decades, both the financial and real sides of the economy have experienced considerable consolidation. We show that banking-sector consolidation is, in part, a consequence of real-sector consolidation; because small banks are a disproportionate source of small business credit, they are disproportionately exposed to shocks to small business growth. Using a Bartik instrument based on national small business trends and county-level industry exposure, we show that changes to the real-side demand for small business credit are partially responsible for the relative decline in small banks’ deposits, income, and loan growth.
JEL Classifications: G21, G34, L25, R12
Brennecke, Claire, Stefan Jacewitz, Jonathan Pogach. 2021. “Shared Destinies? Small Banks and Small Business Consolidation.” Federal Reserve Bank of Kansas City, Research Working Paper no. 21-19, January. Available at External Linkhttps://doi.org/10.18651/RWP2021-19