The importance of being unimportant: small firms and small banks in Italy
by Maria Minniti
Global Business and Economics Review (GBER), Vol. 4, No. 2, 2002

Abstract: According to the literature on the credit channel, changes in monetary policy affect small firms by changing the costs of external financing. The literature, however, has not yet explored the relationship between the cost of available credit to different groups of borrowers and the competitiveness of the banking industry. I suggest the existence of a relationship between the cost of loans to small borrowers and the degree of concentration in the banking industry. The intuition is that if many banks compete to finance small firms, small firms have the option to switch lender. This, in turn, forces competing banks to absorb, at least in part, the shock introduced by the change in monetary policy thereby sheltering small firms from the negative asymmetric effect of monetary policy.

Online publication date: Mon, 07-Feb-2005

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