Bank Liquidity Pressures and the Availability of Bank Credit to Small Firms: Was the 2007-2009 Credit Crisis Different?
Advocacy’s Office of Economic Research released the following report in September.
Bank Liquidity Pressures and the Availability of Bank Credit to Small Firms: Was the 2007-2009 Credit Crisis Different?, by Joe Peek of the University of Kentucky, finds that bank holdings of liquid assets became an important factor for bank lending during the financial crisis. Generally, this sensitivity persisted during the immediate post-crisis period. The evidence also suggests that healthier banks tended to shy away from small commercial and industrial (C&I) and small commercial real estate (CRE) loans.
Several interesting patterns emerged for changes in small loan shares. A general rebalancing effect is apparent for both small C&I and CRE loans in their shares relative to both total assets and total loans. That rebalancing appears to be primarily at the expense of large, not small loans. The study finds that unused loan commitments tended to become less important and did not appear to play a role in the relative composition of small versus large C&I and CRE loans, other than as a temporary increase in C&I loan commitments during the crisis. To the extent that unused C&I loan commitments positively affected the change in small C&I loans relative to total assets and total loans, they did not appear to do so at the expense of large C&I loans.