Working Paper: NBER ID: w31077
Authors: Kristian Blickle; Cecilia Parlatore; Anthony Saunders
Abstract: Using supervisory data on the loan portfolios of large US banks, we document that these banks specialize by concentrating their lending disproportionately in a few industries. This specialization is consistent with banks having industry-specific knowledge, reflected in reduced risk of loan defaults, lower aggregate charge-offs, and higher propensity to lend to opaque firms in the preferred industry. Banks attract high-quality borrowers by offering generous loan terms in their specialized industry, especially to borrowers with alternative options. Banks focus on their preferred industry in times of instability and relatively lower tier 1 capital as well as after sudden surges in deposits.
Keywords: bank specialization; loan performance; credit supply; financial stability
JEL Codes: D04; G20; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| specialization (Z00) | better loan performance (G51) |
| specialization (Z00) | loan default risk (G33) |
| specialization (Z00) | lending to opaque firms (G21) |
| specialization (Z00) | loan amounts (G51) |
| specialization (Z00) | loan terms (G51) |
| tight capital/deposit surge (E51) | stable lending practices (G21) |