Banks as Connectors of Firms

Krisztina Orban, Economics PhD student

While banks have the usual roles of maturity, liquidity and risk transformation, they also serve as a point of contact to firms that use their services. My hypothesis is that banks act as intermediaries between firms, helping firms form business connections with other firms. In particular, my hypothesis is that during the banking deregulation episode that started in the 1980s, when branches from out of state were allowed to enter the market, flows in real goods intensified between the areas where the bank originally had branches and the areas where the bank opened new branches. But no intensifying of real flows occurred if there was no newly opened common bank in the two areas.