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Are Bigger Banks Better? Firm-Level Evidence from Germany

Author

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  • Kilian Huber

    (University of Chicago - Booth School of Business)

Abstract
The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.

Suggested Citation

  • Kilian Huber, 2020. "Are Bigger Banks Better? Firm-Level Evidence from Germany," Working Papers 2020-172, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2020-172
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    Cited by:

    1. Sebastian Doerr & Stefan Gissler & José-Luis Peydró & Hans-Joachim Voth, 2018. "From finance to fascism," Economics Working Papers 1651, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2020.
    2. You Suk Kim & Donghoon Lee & Tess C. Scharlemann & James Vickery, 2022. "Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance," Staff Reports 1035, Federal Reserve Bank of New York.
    3. Shawuya Jigeer & Ekaterina Koroleva, 2023. "The Determinants of Profitability in the City Commercial Banks: Case of China," Risks, MDPI, vol. 11(3), pages 1-21, March.
    4. Marc Blatter & Andreas Fuster, 2022. "Scale effects on efficiency and profitability in the Swiss banking sector," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 158(1), pages 1-24, December.
    5. Glancy, David, 2021. "Housing bust, bank lending & employment: Evidence from multimarket banks," Journal of Banking & Finance, Elsevier, vol. 127(C).
    6. Senay Agca & Pablo Slutzky & Stefan Zeume, 2021. "Anti-Money Laundering Enforcement, Banks, and the Real Economy," Working Papers 2021-20, The George Washington University, Institute for International Economic Policy.

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    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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