Working Paper: NBER ID: w23843
Authors: Brian S. Chen; Samuel G. Hanson; Jeremy C. Stein
Abstract: Small business lending by the four largest banks fell sharply relative to others in 2008 and remained depressed through 2014. We explore the dynamic adjustment process following this credit supply shock. In counties where the largest banks had a high market share, the aggregate flow of small business credit fell, interest rates rose, fewer businesses expanded, unemployment rose, and wages fell from 2006 to 2010. While the flow of credit recovered after 2010 as other lenders slowly filled the void, interest rates remain elevated. Although unemployment returns to normal by 2014, the effect on wages persists in these areas.
Keywords: small business lending; credit supply shock; labor markets; financial crisis
JEL Codes: G01; G21; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| top 4 banks' credit supply shock (E51) | decline in total small business lending (G21) |
| decline in total small business lending (G21) | adverse labor market outcomes (J68) |
| decline in total small business lending (G21) | increase in unemployment rates (J64) |
| decline in total small business lending (G21) | decline in establishment expansion rates (J63) |
| top 4 banks' credit supply shock (E51) | increase in unemployment rates (J64) |
| top 4 banks' credit supply shock (E51) | decline in average annual pay per employee (J39) |
| decline in average annual pay per employee (J39) | persistent negative effects on wages (J79) |