Banking structure and regional economic growth: lesson from Italy

Following the literature on the comparative advantage of small versus large banks at lending to small businesses and in light of the worldwide decline in the number of intermediaries that specialise in this type of lending associated with deregulation in the banking industry, we examine the role that specific categories of banks have played in the context of Italy's regional economic growth. Over the estimation period, 1970-1993, which ends in the year of full implementation of the banking reform that introduced statutory de-specialisation and branching liberalisation, Italy featured not only a substantial presence of small- and medium-sized enterprises (SMEs) in the real sector, as is still the case, but also a large and heterogeneous set of credit institutions with different ownership, size and lending styles. Exploiting these peculiarities we study the role of specific intermediaries and gather indirect evidence concerning the likely effects, ceteris paribus, of the current consolidation processes. The main findings, stemming from panel regressions with fixed effects, are as follows. The overall size of the financial sector has a weak impact on growth, but some intermediaries are better than others: cooperative banks and special credit institutions play a positive role, banks of national interest (basically large private banks) and public law banks (government-owned banks) either do not affect growth or have a negative influence depending on how growth is measured. Cooperative banks were mostly small banks and special credit institutions were all but large conglomerates with standardized credit policies, hence our results lend support to the current worldwide concerns of a reduction in the availability of credit to SMEs resulting from consolidation and regulatory reforms in the banking industry.