Abstract
We interview 379 European bank CEOs to identify their banks’ main competitors. We then provide evidence on the drivers of bilateral bank competition; construct a novel competition measure at the locality level; and assess how well it explains variation in firms’ credit constraints. We find that banks identify another bank as a main competitor in small-business lending when their branch networks overlap; when both are foreign owned or relationship oriented; and when the potential competitor has fewer hierarchical layers. Intense bilateral bank competition increases local credit constraints, especially for small firms, as competition may impede the formation of lending relationships.
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