A Darker Side To Decentralized Banks: Market Power And Credit Rationing In SME Lending

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Executive Summary

The authors use loan-level data to study how the organizational structure of banks impacts small business lending. They 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.

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