XXV Edition

1-2 December 2016"

Nothing Special about Banks: Competition and Bank Lending in Britain, 1885-1925

Dwarkasing Narly, University of Bonn
Braggion Fabio, Tilburg University
Moore Lyndon, University of Melbourne

We investigate the impact of increasing bank concentration on bank loan contracts in the lightly regulated British environment between 1885 and 1925. This environment allows us to abstract from the possible confounding effects of regulation and focus on the “pure” effects of competition on bank lending. Using a dataset of 30,000 loans, we find that borrowers in counties with high bank concentration received smaller loans and posted more collateral than borrowers in low concentration counties. In high concentration counties, the quality of loan applicants had improved, which suggests that banks restricted credit, rather than that the quality of loan applicants had worsened. Counties with a more concentrated banking system had lower tax revenues and lower employment to population ratios.

Area: Banking

Keywords: bank concentration, credit extension, real economy, financial history

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