SMEs and access to bank credit: Evidence on the regional propagation of the financial crisis in the UK

Hans Degryse, Kent Matthews, Tianshu Zhao

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    19 Citations (Scopus)
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    Abstract

    We study the sensitivity of banks’ credit supply to small and medium size enterprises (SMEs) in the UK with respect to the banks’ financial condition before and during the financial crisis. Employing unique data on the geographical location of all bank branches in the UK, we connect firms’ access to bank credit to the financial condition (i.e., bank health and the use of core deposits) of all bank branches in the vicinity of the firm for the period 2004–2011. Before the crisis, banks’ local financial conditions did not influence credit availability irrespective of the functional distance (i.e., the distance between bank branch and bank headquarters). However, during the crisis, we find that SMEs with banks within their vicinity that have stronger financial conditions faced greater credit availability when the functional distance is close. Our results point to a “flight to headquarters” effect during the financial crisis.
    Original languageEnglish
    Pages (from-to)53-70
    JournalJournal of Financial Stability
    Volume38
    Early online date30 Aug 2018
    DOIs
    Publication statusPublished - Oct 2018

    Keywords

    • financial crisis
    • credit supply
    • flight to headquarters
    • flight to quality
    • bank organization

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