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Commercial lending and distance: evidence from Community Reinvestment Act data

Kenneth Brevoort and Timothy Hannan

No 2004-24, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Innovations such as credit scoring have increased the ability of banks to lend to distant business borrowers, which could expand the geographic market for small business loans. However, if this effect is limited to a few large banks, the market may become segmented and lending distance at local banks actually decreases. This paper, using a new data source and a spatial econometric model, empirically estimates the relationship between distance and commercial lending and how this relationship is evolving over time. We find distance is negatively associated with the likelihood of a local commercial loan being made and that the deterrent effect of distance is consistently more important, the smaller the size of the bank. We find no evidence that distance is becoming less important in the United States in recent years. In fact, the bulk of the evidence suggests that distance may be of increasing importance in local market lending.

Keywords: Bank; loans (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-ent and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (37)

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