EconStor >
Federal Reserve Bank of Boston >
Working Paper Series, Federal Reserve Bank of Boston >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/55663
  
Title:The great recession and bank lending to small businesses PDF Logo
Authors:Montoriol-Garriga, Judit
Wang, J. Christina
Issue Date:2011
Series/Report no.:Working paper series // Federal Reserve Bank of Boston 11-16
Abstract:This paper investigates whether small firms have experienced worse tightening of credit conditions during the Great Recession than large firms. To structure the empirical analysis, the paper first develops a simple model of bank loan pricing that derives both the interest rates on loans actually made and the marginal condition for loans that would be rationed in the event of an economic downturn. Empirical estimations using loan-level data find evidence that, once we account for the contractual features of business loans made under formal commitments to lend, interest rate spreads on small loans have declined on average relative to spreads on large loans during the Great Recession. Quantile regressions further reveal that the relative decline in average spread is entirely accounted for by loans to the riskier borrowers. These findings are consistent with the pattern of differentially more rationing of credit to small borrowers in recessions as predicted by the model. This suggests that policy measures that counter this effect by encouraging lending to small businesses may be effective in stimulating their recovery and, in turn, job growth.
JEL:G21
G01
G32
E51
Document Type:Working Paper
Appears in Collections:Working Paper Series, Federal Reserve Bank of Boston

Files in This Item:
File Description SizeFormat
682044733.pdf864.57 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/55663

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.