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Federal Reserve Bank of Boston
Working Papers
Banks and the availability of small business loans
Joe Peek
Eric S. Rosengren

Investigators examining problems with credit availability during the most recent recession have been unable to provide definitive evidence that the decline in bank loans was, at least in part, a supply phenomenon. Furthermore, they have not focused on the subset of loans made to borrowers most likely to be dependent on bank financing. This study overcomes these flaws. By examining formal regulatory actions, we clearly identify a supply shock that caused an abrupt decline in bank lending that cannot be attributed to demand. Furthermore, we find that this decreased lending occurred at institutions and in lending categories serving those firms most likely to be dependent on bank financing. This decline in lending to small businesses was likely a contributing factor to the unprecedented increase in business failures in New England.

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Joe Peek & Eric S. Rosengren, Banks and the availability of small business loans, Federal Reserve Bank of Boston, Working Papers 95-1, 1995.
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Keywords: Bank loans ; Small business
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Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

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