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.

More on this topic

BFI Working Paper·Jul 11, 2024

Identifying Agglomeration Shadows: Long-run Evidence from Ancient Ports

Richard Hornbeck, Guy Michaels and Ferdinand Rauch
Topics: Uncategorized
BFI Working Paper·Jul 8, 2024

Firms’ Perceived Cost of Capital

Niels Gormsen and Kilian Huber
Topics: Uncategorized
BFI Working Paper·Mar 11, 2024

On Recoding Ordered Treatments as Binary Indicators

Evan K. Rose and Yotam Shem-Tov
Topics: Uncategorized