Yesterday afternoon’s session on the role of community banks provided ample evidence of their continued viability and importance. The Lee and Williams paper provides evidence of the importance of small businesses to job creation in our economy and the important contribution that community bank lending makes to the survival of small businesses.
Focusing on start-ups, Lee and Williams find that proximity to a community bank increases the likelihood that a new small business uses bank credit to finance its operations. Their findings support the importance of local knowledge and “soft information” that emerges from a bank’s relationship with its customers in underwriting loans to particularly opaque small businesses.