Bank Lending Tightening Hits Small Borrowers Harder Than Expected
The study looked at how banks changed their lending practices during the financial crisis. Small banks tightened less but charged higher interest rates. Small loans tightened less than large loans. Banks raised rates on risky loans and reduced discounts on large loans. Noncommitment loans were more expensive until the Federal Reserve intervened. Banks with better loan quality and more capital charged lower rates. This shows how banks adjusted their loan prices during the crisis.