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

Hans Degryse, Kent Matthews, Tianshu Zhao

Research output: Journal PublicationArticlepeer-review

23 Citations (Scopus)

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
Number of pages18
JournalJournal of Financial Stability
Volume38
DOIs
Publication statusPublished - Oct 2018
Externally publishedYes

Keywords

  • Bank organization
  • Credit supply
  • Financial crisis
  • Flight to headquarters
  • Flight to quality

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance (all)

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