We study local loan conditions when banks close branches. In places where branch closures do not take place, firms that purposely switch banks receive a 63 basis points discount. However, after the closure of nearby branches of their credit granting banks, firms that locally and hurriedly transfer to other banks receive no such discount. Yet, the loan default rate for the latter (more expensive) transfer loans is on average a full percentage point lower than that for the former (cheaper) switching loans. This suggests that transfer firms are “better” quality than switching firms. In sum, even if local markets remain competitive, when banks close branches, firms lose.

We study loan conditions when bank branches close and rms subsequently transfer to a branch of another bank in the vicinity. Such transfer loans allow us for the rst time to observe the conditions granted when banks pool-price new applicants. Consistent with recent theoretical work on hold up in bank-rm relationships we nd that transfer loans do not receive the discount in loan rates that prevails when rms otherwise switch banks. We hereby critically augment recent empirical evidence on dynamic cycles in loan rates. JEL: G21, L11, L14

No abstract

No abstract

No abstract