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Specialization in Banking

Kristian Blickle¹; Cecilia Parlatore; Anthony Saunders²

¹ Federal Reserve Bank of New York · ² Kristian Blickle is at Federal Reserve Bank of New York. Cecilia Parlatore is at New York University, Stern School of Business, CEPR, and NBER. Anthony Saunders is at New York University, Stern School of Business. We would like to thank the editor Antoinette Schoar, the associate editor, and two ano

ABSTRACT Using supervisory data on the loan portfolios of large U.S. banks, we document that these banks specialize by concentrating their lending disproportionately in a few industries. This specialization is consistent with banks having industry‐specific knowledge, reflected in reduced risk of loan defaults, lower aggregate charge‐offs, and higher propensity to lend to opaque firms in the preferred industry. Banks attract high‐quality borrowers by offering generous loan terms in their specialized industry, especially to borrowers with alternative options. Banks focus on their preferred industry in times of instability and relatively lower Tier 1 capital as well as after surges in deposits.

DOI

10.1111/jofi.70032

Volume

81 (3)

Pages

1531-1572

Language

en

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