Commercial Lending and Distance: Evidence from Community Reinvestment Act Data

By Kenneth P. Brevoort, Timothy H. Hannan. 2004

198 citations recorded by the source corpus.

A number of large banking organizations have substantially broadened the distances at which they are willing to extend commercial loans, but there is also evidence to suggest that this has occurred primarily at the high side of the distribution of lending distances. In this paper, we employ a new source of data to examine the relationship between lending decisions and distance between lender and borrower for that part of the distance distribution where, arguably, most of the competitive interactions among lenders still occur.We report three basic findings: (1) distance operates as a deterrent to lending, even within areas traditionally defined as local markets, (2) distance is more of a deterrent for small banks than for larger organizations, even within these areas, and (3) for those commercial loans made within areas currently treated by regulators as markets, distance has not been declining in importance. Indeed, a preponderance of the evidence suggests that it is becoming, if anything, more of a factor. Possible explanations and policy implications are discussed.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/66ede3a2a9d61ee388e168828d5e234b50052d2b

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Citations in the corpus

Competition and Relationship Lending: Friends or Foes? (2011, unknown): “Partial exceptions are Brevoort and Hannan (2004), Canales and Nanda (2008), Carbó-Valverde et al. (2009) and Degryse et al. (2009a) who provide some useful indications consistent with the strategic use of bank orientation. Brevoort and Hannan (2004) documented that the importance of physical proxim”
The Surprising Use of Credit Scoring in Small Business Lending by Community Banks and the Attendant Effects on Credit Availability, Risk, and Profitability (2011, background): “other researchers without access to data on which lending technologies the banks use (e.g., Petersen and Rajan 2002; Hannan 2003; Brevoort 2006; Brevoort and Hannan 2006 ).”
Bank Branch Presence and Access to Credit in Low-to-Moderate Income Neighborhoods (2010, unknown): “As a result, loan applicants close to their lenders are more likely to be approved and less likely to default (Petersen and Rajan, 2002; Brevoort and Hannan, 2004; DeYoung et al 2006).”
Do banks price discriminate spatially? Evidence from small business lending in local credit markets (2013, unknown): “By contrast, Brevoort and Hannan (2006) and Agarwal and Hauswald (2010) observe that the likelihood of loan approval increases (diminishes) with the geographic proximity between applicant and lender (competing banks).”
Borrower–lender distance, credit scoring, and loan performance: Evidence from informational-opaque small business borrowers (2008, background): “…credit relationships began to emerge during the 1990s, when the geographic distance between small business borrowers and their commercial bank lenders began to increase (Cyrnak and Hannan, 2000; Degryse and Ongena, 2002; Petersen and Rajan, 2002; Wolken and Rohde, 2002; Brevoort and Hannan, 2004).”
Female Entrepreneurship, Agglomeration, and a New Spatial Mismatch (2012, background): “30 For related discussion, see Berger and Udell (1993), Berger, Klapper, and Udell (2001), Brevoort and Hannan (2004), Carlstrom and Samolyk (1995), Demsetz (2000), Drucker and Puri (2009), and Laderman (2006).”