Shared Destinies? Small Banks and Small Businesses

This is the authors' abstract. We don't add key points for this paper.

We identify a new source for the declining role of small banks in the banking industry: Long-term changes in the banking sector are partially a consequence of changes in the industrial sector. Small banks are relatively more exposed to small business shocks, because small businesses compose a larger share of their customers. Lower real-side demand for small business financial services is responsible for part of the relative decline in small banks’ deposits. Rough calculations suggest that deposits at small banks would have been $280 billion higher from 2002 to 2017 if small firms had grown at the rate of larger firms.