Banking Market Structure and Trade Shocks

We study how the structure of the local banking market characterized by bank specialization and bank concentration affects credit and labor market responses to an import shock to local economies. We find that during the surge in U.S. imports from China from 1998 to 2006, small business loans (SBL) decline in counties that face a larger import shock. We show that bank geographical specialization positively affects banks' SBL origination in response to the import shock, while we do not find a significant effect with respect to bank concentration. Consistent with these results, we show that while on average employment and wages decline in counties hit by the import shock, higher bank specialization attenuates these negative labor outcomes, whereas bank concentration does not seem to have such attenuation effects.