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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

Article Citation

  • 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

Author

Stefan A. Jacewitz

Assistant Vice President

Stefan Jacewitz serves as an Assistant Vice President and economist at the Federal Reserve Bank of Kansas City, where he is the oversight officer of the Banking and Financial Ma…

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