Journal Article

Determinants of bank versus nonbank competitiveness in short-term business lending

Abstract: Since about 1974, banks' share of the market for short-term business lending has been steadily eroded through competition with nonbank creditors. This paper tries to identify some factors that may affect bank competitiveness in this category in the short fun and discusses how these factors may have contributed to banks' loss of market share. Estimation of a simple linear model in first differences indicates that banks' market share responds negatively in the short run to above-average default risk and/or monetary tightness and to a decrease in banks' value of deposit insurance. Banks' market share responds positively to an increase in the level of interbank competition. Extrapolation from the short-run model to long-run effects demonstrates the plausibility that above average risk and/or monetary tightness and increases in the aggregate weighted capital-to-assets ratio, which contributes to decreases in the value of deposit insurance, may have played a small role in banks' loss of market share since the mid-1970s.

Keywords: Bank loans; Bank competition; Commercial loans;

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Economic Review

Publication Date: 1993

Pages: 17-32

Order Number: 2