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.