Are bigger banks better? Firm-level evidence from Germany
The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The results are based on newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers and the real economy. ? 2021 by The University of Chicago. All rights reserved.
1 July 2021
Journal of Political Economy 129(7) , pp.2023-2066, 2021
https://www.journals.uchicago.edu/doi/10.1086/714120
This Journal article is published under the centre's Growth programme.