Small Bank Lending in the Era of Fintech and Shadow Banking: A Sideshow?

We show that the steep decline in traditional bank mortgage lending after the crisis was primarily driven by a widespread withdrawal by the four largest U.S. banks (Big4). In contrast, small banks maintain their aggregate share in this market despite rapid nonbank growth throughout the country. A strong, county-level substitution for the retreating Big4 explains small banks' enduring importance: they were four (seven) times more responsive than shadow banks (fintech lenders) in local markets. We show that small banks' relative advantage in balance-sheet financing of loans below the jumbo size limit plays a prominent role in our results.