ساختار بازار و عبور از طریق نرخ اعتبارات فدرال

We study the effect of local market bank concentration on business loan originations and on the pass-through of the federal funds rate to business loan originations. Economic theory on the relationship between concentration and the pass-through of input prices to quantity (or price) is ambiguous. We find that more concentrated markets have lower business loan originations and experience smaller changes in business loan originations in response to changes in the federal funds rate. Our results support the idea that market concentration dampens quantity reactions to input price changes.

The role of competition in the pass-through of input prices has long been a topic of interest in economic research. This research has focused on the effects of competition on, for example, exchange-rate pass-through and tax incidence. This paper considers the relationship between competition and the pass-through of the federal funds rate, a major input price in the banking industry. The federal funds rate is the interest rate most commonly used as an instrument of monetary policy.1 The pass-through of changes in the federal funds rate to bank lending has potential repercussions for the real economy and for the transmission of monetary policy. Understanding the effect of local bank competition on the pass-through of the federal funds rate is important, because it gives policymakers a clearer understanding of how changes in the federal funds rate affect bank lending in areas with differing levels of bank competition. Theory on the relationship between market power and the pass-through of the federal funds rate is ambiguous. While theory gives no clear answer on how competition affects the pass-through of the federal funds rate, empirical analysis could clarify the conditions associated with under- or over-adjusting to rate changes. This paper extends the existing empirical literature by examining explicitly the implications of the effect of market power on loan volume for the pass-through of federal funds rates and the transmission of monetary policy. A majority of the empirical work on lending and competition has focused on static and dynamic analysis of interest rates and lending levels rather than the adjustment of lending to input prices. Several articles have examined the relationship between market structure and loan and deposit interest rates using the Structure–Conduct–Performance theory, which posits that greater market concentration leads to less lending and higher loan rates.2 Other work focusing on “relationship lending” has posited that market power may increase certain types of lending, because lenders with market power are willing to risk short-term losses in exchange for the prospect of greater long-term profits from lending to growing borrowers with whom the lenders have established relationships. Another branch of research has focused on the transmission mechanisms of monetary policy in an effort to better understand how they affect the real economy. Recent literature has considered the role of credit market imperfections (arising from information asymmetries) in the transmission of monetary policy, or the so-called credit channel (see Bernanke and Gertler, 1995). Some authors (such as Carlino and Defina, 1998 and Ashcraft, 2006) have used Call Report data to analyze the effectiveness of US monetary policy in different geographic areas under the assumption that most lending occurs near a bank’s branches. No research exists, however, on the effects of local banking competition on the sensitivity of bank lending to monetary policy.3 We are able to detect the dampening effect of market concentration on responses in loan activity to monetary policy. In particular, we find that as banking market concentration increases, the sensitivity of bank lending to the federal funds rate (our monetary policy indicator) decreases.4 Because of this relationship between the sensitivity of lending supply to changes in the federal funds rate and concentration, monetary authorities may have reason to be concerned with changes in banking market concentration.5 Another contribution of this paper is the use of Community Reinvestment Act (CRA) data that allow us to investigate the relationship between banking industry competition—measured by local market concentration—and new lending activity using measures of loan volumes that are superior to those used in past research. The CRA data annually measure the dollar volume of loan originations under $1 million to all businesses and, separately, to only those businesses with less than $1 million in revenue. CRA loan data are collected at the census-tract level for all depository institutions, regardless of whether the lender has a branch presence in a nearby location.6 Because CRA data measure loan originations, they are likely to reflect changes in bank lending more accurately than the quarterly Call Report data used by previous micro-level research. Our results find that both higher levels of local market concentration and increases in concentration have significantly negative correlations with changes in loan volumes.

This paper examines the effects of differences in concentration of local banking markets on the volume of small business lending and the pass-through of the federal funds rate to the volume of lending. We use the dollar volume of US bank loans from CRA data to estimate a reduced-form model. These data are more accurate measures of lending activity in the United States than the data on changes in the level of outstanding loans used in previous research. Not only does increased concentration result in relatively less business lending in a market, but we also find a significant effect of concentration on the pass-through of the federal funds rate to small business lending. Small business lending decreases as the federal funds rate increases, as predicted by our hypothesis. We find, however, that the effect of federal funds rate changes is weaker in more concentrated banking markets. This relationship between bank lending and the federal funds rate has not, to our knowledge, been explored previously. Because only 8 years of reliable CRA data are available, the data are not adequate for an analysis of the overall effect of small business lending and concentration on real output. Future research may be able to address this shortcoming.